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Buyers and homeowners racing to get ahead of interest rate rises

The latest data from UK Finance and Experian suggests that borrowers are looking to get ahead of the impending interest rate hike by the Bank of England.
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Borrowers took mortgages worth £21.9bn in January, an increase of 9.8% on the same month in 2017, according to figures from UK Finance. During the same period, the number of people remortgaging rose by 4.6% to 24,930, while mortgages for house purchases fell by 5%.

In February, data firm Experian’s mortgage comparison website saw the proportion of customers searching for fixed-rate deals rise to 67.4%, a 7% increase on December. At the same time, reports indicated that many top lenders had started pulling their best deals from the market.

The Bank of England has given strong indications that it expects to raise the base rate in May to 0.75%, its highest since February 2009. Economists are predicting a second rise in November, followed by a period of stability as the UK prepares to leave the EU in March 2019; although some are expecting a third rise in 2019 and the base rate to reach 1.25% in 2020.

Increased competition for fixed-rate deals

In recent weeks, NatWest, Nationwide and Halifax have all withdrawn some of their most competitive mortgage deals. However, in anticipation of increased competition for fixed-term mortgages, other lenders have dropped some of their rates. The latest data from Mortgage Advice Bureau suggests that 97% of customers borrowing to fund a property purchase and 95% of those remortgaging in February took out a fixed-rate deal.

In the current climate, it seems that borrowers have little to gain by holding off from remortgaging now. If rates were to return to what was previously considered normal (between 1997 and 2007 the average base rate was 5.4%), many homeowners with mortgages will struggle to meet higher repayments.

If your current term hasn’t ended yet, you can still look for a new deal

For those borrowers nervously awaiting the end of their mortgage term later this year before they can take action, it’s worth highlighting that some lenders will give six months to take up a rate they have offered in principle. It will certainly be a smart move to start looking now to take advantage of today’s low rates before they disappear.

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