cost of fixed-rate mortgages has been falling since the start of the year.
Home buyers applying for mortgages could save thousands by asking their lender for a cheaper fixed rate.
Despite another interest rate rise from the Bank of England, the cost of fixed-rate mortgages has been falling since the start of the year.
However, this is a detail banks don’t have to share with you — even if you began your application last October, when rates peaked above 6.5 per cent.
Cooling off: Despite another interest rate rise from the Bank of England, the cost of fixed-rate mortgages has been falling since the start of the year
A simple call to your bank could slash future monthly payments for tens of thousands of people and save thousands of pounds in interest, experts say — even if you started the application as recently as last month.
For example, on October 24, NatWest’s five-year fixed rate for borrowers with a 15 per cent deposit was 6.39 per cent, costing £1,671 a month based on a £250,000 mortgage over 25 years.
By February 2, the equivalent rate for new borrowers was 4.58 per cent, giving them a payment of £1,401 a month. This switch would save a borrower £16,200 of interest in just five years.
Adrian Anderson, director of mortgage broker Anderson Harris, says: ‘For the past 15 weeks, mortgage lenders have been reducing fixed rates on new deals. That’s a trend I expect to continue.
‘If you have a mortgage offer letter from the last one to four months and haven’t drawn down the mortgage yet, call your bank. It may allow you to switch to an equivalent cheaper deal.’
Mr Anderson says he has saved one customer £330 a month by switching their 5.24 per cent five-year fixed rate with HSBC, booked on November 10 and costing £1,965 a month.
Still awaiting completion, he went back to the bank and asked for a switch to 4.36 per cent, the equivalent rate being offered to new customers. This will save the borrower £19,800 in interest between now and 2028.
Ask your bank what rate it is offering new customers for the same deal and if you can switch without invalidating your mortgage offer, explains Mr Anderson.
‘It isn’t guaranteed because banks have different rules,’ he adds. ‘But it’s worth a call to avoid being trapped on a high rate unnecessarily.’
Last week, HSBC launched the first five-year deal below 4 pc since early October, at 3.99 per cent; and First Direct did the same yesterday. Meanwhile, Lloyds Bank and Virgin Money are now also offering 3.99 per cent for those who fix until 2033.
The average five-year fix is currently 5.08 per cent, while ten-year deals sit at 5.06 per cent, according to analyst Moneyfacts.
Decade-long fixes are a relatively niche product. According to UK Finance, 22 per cent of mortgages taken out in November were fixed for two years, 66 pc for five years and just 4 per cent for more than five years.
Experts are urging homeowners and buyers not to rush into ten-year deals, even if the rates on offer are better than two-year and five-year fixes, because they offer less long-term flexibility.
Andrew Montlake, of broker Coreco, says: ‘Consider your circumstances, such as how long you want to stay in a property, when applying for a mortgage.
You may be able to transfer a mortgage to another property but this depends on your lender. I would never advise making a decision based just on rates.’
There may be a greater variety of products in the future as lenders compete for customers, says David Hollingworth, of mortgage broker L&C. He adds: ‘There will be more choice in the coming weeks as lenders continue to launch products below 4 per cent.’
The cost for banks to borrow money to lend to homeowners — the ‘swap rate’ — is currently higher for short-term borrowing than for long-term lending, so banks can offer better rates on products with longer durations, Mr Hollingworth says.
