Home prices rise, but mortgage rates offer a silver lining

Home prices continue to skyrocket, leading some buyers to question their ability to pay a mortgage. If you are one of those buyers, don’t worry! Good news for borrowers: Mortgage rates are currently at record highs. But should you rush to take advantage of these low prices? Here’s what you need to know.

Why are mortgage rates so low right now?

Thanks to the Bank of England’s base rate, which is currently at an all-time low of 0.1%, lenders underestimate each other on prices (called the “mortgage rate wars”).

Borrowers can now access mortgages at interest rates below 1% (mortgages below 1%). In fact, the cheapest rate you can get right now is a two-year 0.79% fixed rate mortgage from Platform. This undermines the previous low – a 0.87% two-year fixed rate mortgage – provided by Nationwide.

Does a lower interest rate mean you pay less money?

Low-interest mortgages can be tempting, but that doesn’t necessarily mean you’ll pay less. It’s wise to factor in the full cost of the mortgage before you rush out to take advantage of the opportunity.

Many mortgage lenders charge relatively high upfront fees to cover their losses. It’s wise to calculate the numbers to see if a higher rate mortgage deal with a fixed term might in fact be more affordable than a tempting fixed rate mortgage deal with a shorter term. It’s a good idea to use our online mortgage calculator to compare how much different mortgage transactions will cost you.

If you’re not sure which deal to choose, it’s always a good idea to speak to an independent mortgage advisor for specific numbers and personalized advice.

Are you eligible for a mortgage of less than 1%?

Typically, those interested in taking out a mortgage are new home buyers and homeowners looking to remortgage. Therefore, you may want to check out mortgage rates or offers that apply only to buyers and those that apply only to refinancing.

Additionally, you may notice that most mortgages below 1% start at 60% LTV (loan value), with a few starting at 75% LTV, meaning that you will need to ‘a larger initial deposit. Higher LTV mortgages are considered high risk and carry a higher rate. This means that if you cannot pay the initial deposit, you might not be eligible for the less than 1% mortgage.

Mortgage rates set to rise in the UK in 2021?

We have already seen that mortgage rates are currently low, with lenders undercutting each other on prices. While there is no sign that mortgage rates will go up, that doesn’t mean it can’t happen. The key factors to keep in mind are inflation and the base rate of the Bank of England.

The Office for National Statistics recently revealed that consumer price inflation for August 2021 increased 3.0% year-over-year to August 2021, compared with 2.1% year-over-year to July.

Fortunately, the Bank of England’s Monetary Policy Committee unanimously voted to keep the rate at 0.1% on September 23, which means mortgage rates could stay low. However, if inflation continues to rise, the Bank of England could step in and raise the policy rate on November 4.

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