‘Two years isn’t enough’ – mortgage fix warning as rates near 5%

Interest rates: Martin Lewis on affect on mortgage applicants

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Now mortgage experts are warning to choose their next deal very carefully, to give maximum protection against higher interest rates. Homeowners on the most popular deal, a two-year fixed rate mortgage, could find it expires at the worst possible time.

THE Bank of England is expected to increase interest rates for the seventh time tomorrow in a move that will up the pressure on millions of borrowers.

Mortgage, credit card, personal loan and overdraft rates have already risen sharply this year as lenders pass on higher base rates to customers.

Bank rate currently stands at 1.75 percent but could rise to 2.50 percent, depending on what BoE’s monetary policy committee decides.

Further increases may follow in November and December, with traders getting that the bank rate will hit 3.75 percent by the end of the year, as the BoE battles to curb inflation.

The average two-year fixed-rate mortgage now charges 4.09 percent, the first time it has topped four percent in nine years, according to Moneyfacts.

New mortgage rates are now rising at an even faster pace than interest rates, so homeowners should brace themselves for another big leap after tomorrow.

This is a huge worry as one in four borrowers will not be able to afford their mortgage if interest rates hit five percent.

Borrowers on variable rate mortgages, or whose fixed-rate deals expire in the next 12 to 18 months, are most concerned, according to research from removals company Anthony Ward Thomas.

Founder Anthony Ward Thomas said: “Throw in higher energy, fuel and food bills and it is no surprise that people are uneasy.”

Worried homeowners should consider looking into a longer term mortgage fix, said Chris Sykes, technical director at Private Finance.

Two-year fixed rates are usually cheaper but today’s best buy is just 0.07 percent higher than the best available five-year fix, amid money market volatility.

Barclays currently offers a best buy five-year fixed-rate mortgage charging 3.49 percent up to 60 percent loan-to-value (LTV), with a £999 product fee.

This rises to 4.20 percent for buyers who only have a five percent% deposit and need to borrow up to 95 percent LTV. There is no product fee, though.

Personal loan rates are rising too, with the average APR on a £7,500 five-year loan now 5.7 percent, the highest since January 2016, Moneyfacts said.

One year ago it stood at 4.4 percent.

Credit card rates are also rising, even though they already charge far more than base rates.

One year ago, with bank rate at 0.1 percent, the average card APR charged 26 percent. Since then it has climbed to 29.6 percent.

The number of cards charging zero interest on balance transfers and new purchases for an introductory period has also fallen as credit card issuers tighten.

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Moneyfacts finance expert Rachel Springall said rising rates threaten to worsen the cost of living crisis. “Consumers must keep up with their repayments and switch to cheaper deals if they can.”

She urged borrowers to check their credit score before they make any applications for a loan or card, and seek advice if they are struggling with their debts.

Michael Hewson, chief market analyst at CMC Markets, said many analysts still expects a hike of 0.75 percent tomorrow. Even if the Bank of England only increases by just 0.5 percent many borrowers could struggle.

“While interest-rate rises are designed to tackle inflation and the cost of living, they will leave borrowers, especially those not on fixed terms, worse off.”

Walid Koudmani, chief market analyst at financial brokerage XTB, said the Bank of England faces a tough job as the pound falls to a 37-year low against the US dollar of just $1.135.

“It must strike the balance between managing inflation, supporting the currency while not negatively affecting the overall economy.”

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