Despite the Bank of England’s latest base rate hike, mortgage costs for many products were down in December and more falls are expected.
On 15th December, the UK base rate was lifted from 3% to 3.5%, in the Bank’s ninth consecutive increase and bringing it to a new 14-year high.
While the hike was not a surprise, it has left homeowners and savers alike looking at the best options available to them now. Whether banks and lenders will pass on the increase is never certain, though.
But according to Moneyfacts finance expert Rachel Springall, and the money comparison expert’s recent figures, mortgage costs may not be heading north in the way that many borrowers expected, with fixed rates in particular already coming down.
Weighing up your mortgage costs
Unfortunately, as the country continues to face mounting inflation, future base rate rises from the Bank of England appear likely – at least into early 2023. This is behind much of the speculation about whether this will offset appetite for the UK housing market.
Looking at the latest figures, though, mortgage costs across many products were actually lower in December than in November. The only exceptions to this, on average, were standard variable rates (SVRs) and 10-year fixed rates.
For those securing a two-year fixed rate deal in December, the average rate was 6.01%, according to Moneyfacts (as of 15th December), compared with 6.47% in November. Five-year fixed rates had gone down to 5.80% from 6.32%, meaning lower mortgage costs.
Borrowers taking out or remaining on their lender’s standard variable rate may have faced a further hike, however, as the average rate increased from 5.86% in November to 6.40% in December. The average 10-year fixed rate inched up slightly, from 5.65% to 5.59%.
What borrowers should do
Whether you’re a homeowner, a mover or a property investor seeking the best options right now, getting good, impartial advice on the myriad of options out there is advisable. The best product will depend on your individual circumstances, and your end goals.
However, as Springall points out, there is an expectation that fixed rates and mortgage costs will reduce further in the coming weeks, so some borrowers may wish to adopt a ‘wait and see’ approach to the market.
“Whether now is the time to grab a new deal depends entirely on someone’s circumstances,” she says. “As fixed rates are expected to come down further, borrowers may wish to wait and see what the next few weeks will bring.
“However, those who are sitting on a standard variable rate (SVR) may wish to note the impact the base rate rises will have on their repayments. Since December 2021, the average SVR has risen by 2% and, as lenders are traditionally quick to pass on base rate rises, it will impact on someone’s monthly repayments.”
She points out that in terms of real mortgage costs, another 0.5% increase on today’s 6.40% would add around £1,509 on average to the borrower’s total repayments over two years.
If you know your mortgage term is set to expire in 2023, it might be advisable to start planning ahead now in order to minimise overall future mortgage costs.
Often, lenders offer competitive rates to those who pay larger product fees, so saving up a pot of money in advance to pay for this could secure you a better overall rate when the time comes.
Many property owners also find making overpayments useful, if this can bring you down to the next loan to value bracket to unlock better fixed rate deals.