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Personal finance: Fixed-mortgage costs soar after hint on rates

July 6, 2014

Lisa Bachelor

The cost of the most popular two-year fixed-rate mortgage deals has shot up after a period of historically low rates, according to data provider Moneyfacts.

In June, the best direct mortgage rate on a two-year fix for somebody with a 20% deposit was 1.99%; this is now 2.24%. The rise equates to an extra pounds 12 a month on a 25-year pounds 100,000 loan. The rates have risen by similar amounts for those with deposits ranging from 25% to 40% of the size of the loan.

"For the first time in a long time, the people with the biggest deposits are coming off worse as the competitive first-time buyer cheapest rates are the same as last month," said Sylvia Waycot, editor at"Borrowers are set to pay the price of a rate rise before the Bank of England rate has in fact risen."

Last month, Bank of England governor Mark Carney hinted that rates could rise sooner than expected as concern grows over a bubble in house prices. Swap rates, the market rates on which mortgage pricing is based, have risen slowly ever since.

"The end result is now showing in the direct-to-borrower market," said Waycot. "Anyone taking the cheapest deal today will still get the cheapest deal, but it is going to cost more than it did last month."

The best two-year fixed-rate mortgage for someone with a 20% deposit is from the Norwich & Peterborough at 2.24%, says Moneyfacts. A lower rate of 1.58% is available from West Bromwich for those with a 40% deposit, but the loan entails a pounds 2,499 fee.

The cost of the cheapest five-year fixed rates on most loan-to-value ratios has also risen, albeit by less than the rise on the two-year loans.


Hardest hit will be those with big deposits.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Observer (UK)

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