Lenders generally anticipate what they think the Bank of England will do with base rates, so that by the time they rise or fall the likelihood is that mortgage rates will already have changed.
It's hard to stay one step ahead of the mortgage market particularly as economists rarely agree on what they think interest rates will do and they often get their predictions wrong. The best plan of action is to decide on the type of mortgage deal that's right for you.
If you'd struggle to cope if your mortgage repayments increased, it makes sense to take out a fixed-rate deal. You'll be pleased if interest rates rise during the time of your fix, but of course, if they fall you could find yourself trapped in an uncompetitive deal as it is usually expensive to get out of a fixed-rate mortgage early.
The main advantage of this type of mortgage is that it gives you peace of mind knowing that your monthly repayments will remain at a set, manageable amount for the length of the deal - no matter what happens to interest rates.
However, if you think you'd be able to cope with changes to your monthly repayments, you could look at a tracker mortgage deal which means you'll benefit from any decreases in the base rate. Tracker mortgages typically follow the base rate by a set amount for a set period of time typically 2-5 years. For example, the rate might be base rate plus 1%.
On the downside, this is a riskier strategy: If the base rate rises considerably, so will your monthly repayments. Check out the difference between rates on offer for tracker and fixed-rate mortgages to give you an idea how much the base rate has to rise before you'll be worse off. Most lenders tie you into their trackers during the period of the deal, but not all of them do so you could always remortgage onto a fixed rate when rates start rising.
Since the credit crunch started in 2008, lenders' standard variable rates (SVRs) have often been the cheapest option so more home buyers have been happy to stick with them. However, like a tracker mortgage, they will rise once base rates do. The advantage is that mostly they don't have any tie-ins, so you're free to look for a better deal and move quickly.
It's always a good idea to start hunting for new mortgage deals around three months before your existing deal comes to an end. That way, you're not caught on the back foot and have plenty of time to find the best deal. This is particularly important if you think interest rates may rise in the next few months.
If you find a good deal in advance, mortgage lenders and brokers will often let you lock into that rate while you wait for your existing deal to end. Be aware that you'll probably be charged a small fee for doing this. Don't forget to factor in the arrangement fees which can be high when working out the cost of your mortgage.
Finally, if you're considering remortgaging before your existing deal comes to an end, make sure you read all the terms and conditions attached to your existing deal. Many lenders charge early repayment penalties if you switch before the end of the term.
You need to take these extra fees into account when working out the overall cost of your mortgage to see whether it's still worth remortgaging at that stage or whether it's better to wait.
|Lender||Initial Rate||Duration||Standard Rate||Overall Cost For Comparison||Max Loan To Value||Fee|
|2.59%||2 years||5.69%||5.4% APR||75%||£999|
|2.69%||2 years||4.99%||4.9% APR||75%||£495|
|2.94%||2 Years||5.69%||5.4% APR||75%||£199|
|2.99%||2 years||4.99%||4.9% APR||85%||£495|
|2.99%||3 years||4.99%||4.6% APR||70%||£499|
|3.0%||2 years||5.69%||5.5% APR||80%||£999|
|3.19%||5 Years||4.79%||4.2% APR||80%||£995|
|3.35%||To Jul 2014||4.95%||4.6% APR||75%||£999|
|3.5%||2 years||5.49%||5.1% APR||75%||£595|
|3.84%||2 years||3.94%||4% APR||90%||£499|