Lenders have increased the cost of fixed rate mortgages after the Bank of England signal the end of cheap borrowing.
The Bank of England’s monetary policy committee (MPC) has signalled the end of ultra cheap money as the economy shows signs of strong than expected growth.
The 10 million borrowers in the UK including first time buyers, home movers and remortgage buyers must be prepared for a rise in their borrowing costs after fives years of 0.5% base rates.
The 10 million of first time buyers and remortgage borrowers in the UK must be prepared for a rise in their borrowing costs after fives years of 0.5% base rates.
However, the MPC is uncertain exactly when the increase will occur and this could be later this year although any increase would be gradual to gauge the impact of such a move on the economy.
Fixed rate mortgages cost more
With the threat of higher interest rates lenders have been withdrawing existing fixed interest mortgage rates and replacing them with higher cost products by between 0.15% and 0.25%, or as high as 0.3% for the West Bromwich Building Society.
Money markets have been increasing the cost of loans after remarks from the Bank of England increasing interest rates later this year.
This has increased the swap rates between banks lending to each other and therefore the cost of mortgages to first time buyers, home movers and remortgage buyers.
This has increased the swap rates between banks lending to each other and therefore the cost of mortgages to first time buyers and homeowners remortgaging.
The existing fixed rate mortgages are usually valid for a period of six months so can be secured by borrowers if they intend to buy or remortgage during that period.
Mortgage approvals expected to fall
Lenders are becoming more cautious as the Bank of England and the Financial Policy Committee (FPC) aim to reduce risky mortgage practices.
One measure could be to limit the loan multiples to income on large mortgages would reduce the total number of loans approved.
The Royal Bank of Scotland and Lloyds Bank have already decided to limit mortgage lending to four times income for loan over £500,000.
There has also been a significant shift in homeowners switching to fixed rate mortgages away from variable rate. The number of fixed rate deals increased to 81% for the first quarter of the year compared to 71% for the same quarter in 2012.
For older homeowners there is higher activity with equity release mortgage buyers securing fixed rates typically from 5.9% upwards without any evidence of earnings, important for borrowers with only pension income.
Looking further back variable and fixed rate mortgages was more evenly split so borrowers are now very likely to select a fixed rate in anticipation of future interest rates rises.
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