Shop wise and save four years on your mortgage
A price war that is erupting between the banks could mean that the average first-time buyer could, theoretically, pay off their mortgage four years earlier if they shop wise.
When the Bank of England reduced the rate to 0.5% in 2009, the analysts said that mortgage rates simply could not go any lower. That has proved to be anything but the case and intense competition, tougher rules for lending and a dearth of suitable candidates mean the competition in the mortgage market has intensified.
The average fixed-rate two-year deal came in at 4.79%, says data company Moneyfacts, while the average rate today is just 2.56%. So on an average £150,000 home the payment that was £859 in 2009 is now down to £677. That is a 20% saving and there is the feeling within the industry that the rate could slip below 1% on a two-year deal in the coming months.
So if you’re thinking of jumping ship on your mortgage deal and signing with a new provider, then you might want to hold off and wait for a better deal.
Most homeowners will simply enjoy the lower repayments, but if they actually put the savings into overpayments then the mortgage would be paid off four years earlier and they would actually save thousands in interest charges.
Smart savers that did not fall victim to the recession and did in fact make mortgage overpayments in the last seven years would now have, on average, £3519 less mortgage debt, according to broker London & Country. To actually achieve this figure, though, savvy shoppers would have had to move to the optimum fixed two-year deal on a bi-annual basis, which means a new credit check and acceptance each and every time. With the tough new rules, this would not necessarily be a straightforward procedure.
Those that did the best mortgage deal could then find ways to reduce debt and take care of their personal finances.
In 2009 the best-fixed rate deal was 2.99%, two years later it was 2.79%, in 2013 it was down to 1.89% and in 2015 the best rate to be had was a record low 1.18%
A hike in the base rate of interest could send the mortgage market into reverse and the rates could climb again in the near future. Indeed the housing market has lived under the shadow of an impending rate rise for some time now and there are fears that homeowners will come under intense pressure if interest rates rise sharply in the years ahead.
The feeling in some circles is that the current state of interest rates is simply unsustainable and has been kept artificially low during the austerity era. When the rates start to rise there is a real fear that they could increase dramatically and mortgage providers will simply have to hike their rates.
So it’s a tough decision for homeowners as to when to lock themselves into a long-term fixed deal. At the moment, though, rates are still going down and it’s a good time to shop around and make sure you have the very best deal.