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Has the time finally come to fix mortgage rates?

As 2017 gets going it looks like fixed rates are creeping up. Was 2016 as low as fixed rates can go? And if fixed rates are going up, should you fix a rate now?

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2016 saw the lowest ever fixed rate mortgage deals, with fixed rates going as low as 0.99%, briefly going even lower than variable rate deals.

But with fixed rates on the rise, could the market have reached its lowest and is up the only way for fixed mortgage rates to go?

Could it be time to fix your mortgage rate?

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What has happened to fixed rates?

There’s no need to panic as fixed rate mortgages haven’t dramatically spiked up, they’re just creeping up slowly by a fraction of a percent.

However, the increase has been noticeable, with the lowest fixed rate creeping up from 0.99% to 1.15% and now sitting at 1,18% with a two year fixed deal from First Direct.

But there’s no guarantee fixed rates will not go down again and with no base rate rise on the horizon (see below) this could still happen. HSBC, when they pulled the lowest ever fixed rate deal, commented “should the cost of funding come back down you can be sure we will reflect that with some great deals.”

Edit – 26 January 2017

Yorkshire Building Society just introduced a slightly lower fixed rate of 1.16% for two years. Whilst this remains noticeably higher than the rates we saw in 2016, it is a slowing of the upward creep of fixed rates.

It remains to be seen if this is part of a market trend, or simply a short-term marketing ploy from Yorkshire Building Society to sit at the top of mortgage comparison tables.

Variable rates still available under 1%

Variable rates are usually lower than fixed rate deals, with the trade-off being that your rate can rise at the bank’s discretion. However, for a few months of 2016 fixed rates were lower than variable discounted rates.

This phenomena likely arose after lenders (correctly) assumed the price of money and the base rate of interest could get even lower, but now with the cost of borrowing rising again for banks (even with the low base rate), banks are betting on rates going up and so will try to entice borrowers on to low variable rate deals.

So right now, the lowest rate you can get is a 0.98% two year discounted variable rate mortgage from Yorkshire Building Society.

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What’s happening with the wider markets?

As far as economic forecasts are concerned we’re entering some uncharted waters, with the implications of both the economic policies of President Donald Trump and the terms of Brexit remaining relatively unknown quantities.

Interestingly it’s thought Trump has already affected money markets, with swap rates (the price at which banks buy and sell money to each other) spiking shortly after his election victory in what has been dubbed the “Trumpflation” effect.

“Trumpflation” surprisingly had more of an apparent impact on UK mortgage prices than the Brexit vote, with rates creeping up just after his election in November 2016, after having remained at an all time low for much of the past year.

What’s the Bank of England saying?

It’s worth remembering the biggest influence on the price of UK mortgages will come from the base rate of interest set by the Bank of England (BoE) – when the base rate goes up and down, mortgage rates will follow.

The base rate has been set at an unprecedentedly low of 0.25% since August 2016 when it was cut in response to the Brexit vote, after several years of sitting at the already historic low of 0.5%.

In a recent speech, Mark Carney, Governer of the BoE, said the bank needs to walk a tightrope between keeping inflation in check and supporting growth and jobs with the base rate.

While he didn’t drop any hints whether rates will go up anytime soon, he said the BoE will be “keeping close eye on consumer spending” citing concerns about the highest UK household debt levels since 2008.

So any decision will likely be based on these metrics. Though it’s worth remembering Mark Carney has past form for shifting goalposts, famously deciding to not act on his “forward guidance” plan back in 2014, which was meant to see rates rise as unemployment fell.

Furthermore, in a recent poll of economists, the news agency Reuters found most believed the low base rate will be around until at least 2019.

Is the lowest rate the best?

Pursuing the lowest rate possible for your mortgage could be something of a maddening task, it’s better to consider mortgage rates in broader terms and if the market is hovering at all-time lows as it is now it’s probably as good a time to fix as any.

mortgage rates 2017

But regardless of whatever the money markets are doing, always consider your mortgage in personal terms, in essence can you afford this repayment, could you afford the repayments if rates rose by a reasonable amount? Remember before 2008 mortgage rates could fluctuate by as much as 10%, if not more.

Also it goes without saying that you need to carefully look at any associated fees and the full cost of the mortgage, often the lowest rates come with relatively hefty arrangement fees or will revert to a higher than average standard variable rate, which might not make the low headline rate worth it.

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