By : Harriet Meyer
Tesco Bank, West Bromwich building society and NatWest are among lenders pulling record-low five-year mortgage deals.
Some of the cheapest five-year fixed-rate mortgages have been pulled by lenders, signalling that record-low rates may be drawing to a close. Tesco Bank withdrew the lowest five-year fix on the market last week, at 2.49% with a £1,495 fee at 60% loan-to-value (LTV), while West Bromwich building society pulled all its five-year deals this month, some as low as 2.69%.
Banks and building societies have benefited from the Funding for Lending scheme, enabling them to tap into cheap money from the government, rather than seeking funds from retail investors. However, with expectations that the base rate will rise within the next three years – or sooner than Mark Carney, governor of the Bank of England, suggested – lenders are under pressure to raise rates.
David Hollingworth of broker London & Country says: "Rates on money markets, known as 'swap' rates, are still higher than only a few months ago. These rates reflect lenders' funding costs, and they react to expectations of future interest rates, which in turn can affect the price of mortgages."
NatWest lifted rates on some of its five-year fixes last week, with the 60% and 75% loans rising to 3.05% and 3.35%. Yorkshire building society has put up the rate on its five-year fix at 65% LTV, from 2.44% to 2.49% and then up to 2.59%, although this remains an attractive deal, says Hollingworth. Halifax offers a five-year fix at 2.69% to 60% LTV with a £1,495 fee for borrowers remortgaging.
Mark Harris, of mortgage broker SPF Private Clients, says: "If you can find a five-year fix at less than 3% it is well worth taking, as it won't get much better than that." A two-year fixed rate could appeal if you want to keep your monthly repayments down, but take into consideration that when that period ends you will move on to your lender's standard variable rate, by which point interest rates may have risen.
Harris says: "While there is little expectation that rates will rise in the next two years, the picture is less certain over three to five years, and a five-year fix will give you certainty at a time when rates could be increasing." He adds that it is important not to fix for longer than you are absolutely sure about as hefty early repayment charges apply to exit during the fixed period.