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Mortgage rates must rise so lock in now

how to fix mortgage rateIt’s an irresponsible thing to say but it seems like there’s never been a better time to borrow money, at least in terms of mortgages. Really, money is cheap these days. I remember taking out my first mortgage at the tender age of 28 and paying about 6% interest. That’s the most enormous sum compared to today. By the start of March, we’ll have had base interest rates at 0.5% (or less) for eight years. These are the rates set by the Bank of England and all other saving and borrowing rates are calculated against them. They got pulled down to 0.25% last August in a bid to prop up the economy should the pro-Brexit vote cause trouble. 

These low rates are allowing lenders such as Santander and Yorkshire Bank to offer some truly jaw-dropping deals at 0.99% and 0.98% respectively. Well, that’s the headline rate. By the time they’ve added in application fees and restrictions, it’s not quite as mouth-watering as it first appears. Even so, people are jumping on the easy money bandwagon. January had the highest lending totals in nine years, industry figures show.

To me, this is beginning to sound like it’ll all end in tears. The Bank of England generally puts up rates to control inflation (the increase in the cost of living). Due to Mr Trump’s shenanigans in the US and other pressures here, it’s on the rise – although not out of the safe zone yet. And, if the path to Brexit smooths, there’ll be no reason to keep rates artificially low. Everyone’s been expecting rates to rise for ages and it hasn’t happened – there’s always another crisis. But, if they do go up, it could hit quite hard, especially on large amounts of debt. So it’s worth considering several actions now. 

If you’ve already got a mortgage and you’re not locked in with redemption penalties, have a sniff about for a better option because these super cheap deals won’t be around forever. Similarly, if you’re a new borrower, factor in interest rate rises and how they might affect your ability to pay – although your lender should stress test this anyway.

Finally, if you have spare cash, you might think about paying down the mortgage rather than saving. The interest rates on most accounts are woeful – hardly worth the bother. I’ve written recently that shares could be a better bet for some, but others might want to reduce outgoings. Think about this: if you put this year’s Isa allowance of £15,240 in an account paying 1%, you’d earn £152.40. But if you paid £15,250 off your mortgage, how would that affect your monthly payments, now and in the future when rates could’ve gone up?

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Monday, 22 April 2019