Rates on Fixed-term Mortgages Rise – Consumers Urged to Act | Prepaid365

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10 February 2014
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Rates on fixed-term mortgages are rising and borrowers looking for a long-term fix are being urged to act quickly.

Many five-year, fixed rate mortgages from the major lenders have all risen in the past few weeks, with several low-rate products being withdrawn altogether.

Santander, Natwest, Nationwide, Yorkshire Building Society, Clydesdale Bank and Tesco Bank have all boosted rates on their fixed deals.

Moving on from record lows

The lowest rate five-year deal is now worth 2.95%, up from the record lows experienced in the middle of 2013.

As a result the lenders are taking action, with many expected to push their prices up despite most rates remaining competitive.

David Hollingworth, of London and Country, said the “tide is turning” ahead of a possible base rate rise in the near future.

“You tend to see a domino effect once a handful of lenders start changing their pricing,” he said. “Borrowers looking to fix should not wait until just before a base rate rise.

“Lenders are proactive and prepare for changes well before they happen. We will inevitably see rates continue to edge up this year as we get closer to a base rate rise.”

Taking advantage of low base rates

The record-low 0.5% base rate has meant prices have been cheap for some time, but despite suggestions to the contrary, the Bank of England is yet to raise it.

The Funding for Lending scheme also allowed lenders cheap access to finance, boosting the numbers of people who could consider mortgages.

However, the withdrawal of Funding for Lending and a rise in swap rates – the tool used to price loans – is making it more expensive for lenders looking to access finance.

Simon Gammon, head of Knight Frank Finance, said he believes an increase will occur ahead of 2016 – the current date that the Bank of England expects a rise to occur.

He said the likelihood of change was “building dramatically” and added it was the reason why swap rates are increasing despite the base rate not changing.

“We have already witnessed many lenders over the last few years pick and choose the best borrowers, and mortgage application declines have at times been very high,” he said.

“Expect this trend to re-appear more as the number of borrowers wanting to fix their rates increase.

Obtaining a mortgage – Income, Credit Rating and a Deposit

The key aspects to gaining a mortgage often revolve around 3 things – income, credit rating and an appropriate deposit and a number of consumers are turning to prepaid cards as a saving mechanism or an electronic piggy bank.

Such cards do not require a credit check, so people struggling financially can get a prepaid card without their credit history being scrutinised and in terms of financial management, the amount spent can only be what funds are shifted on to the card, preventing overpayment or reckless spending.

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Furthermore, some prepaid cards can actually help improve your credit history – so developing a prepaid habit may assist a mortgage application in the future, if you credit history needs repair.

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