The Bank of England base rate rise has begun to have an effect on the mortgage market, although buy-to-let mortgage rates remain competitive.
The good news for those seeking a mortgage is that the number of products on offer from lenders continues to improve. According to Moneyfacts‘ latest figures, there are now 5,394 products available to borrowers, compared to 4,096 in January 2017.
However, what borrowers need to be aware of is the fact that the ultra-low rates we have been experiencing could be on the way out, albeit slowly. In December, the Bank of England finally upped the base rate from the historic low of 0.1% to 0.25%, and lenders are now following suit.
The state of mortgage rates
As expected, tracker rates have gone up by the same amount as the base rate on average, rising 0.15% to 3.53%. In the fixed rate market, two- and five-year fixes have increased for the third consecutive month, says Moneyfacts. The average two-year fixed rate product is now 2.38%, a 0.04% monthly increase, for example.
This is the case across all loan-to-values (LTVs) on average. However, mortgage rates for those with the smallest deposits have actually fallen for the ninth month in a row, which will certainly be helpful for many.
Eleanor Williams of Moneyfacts comments: “Borrowers with a 5% deposit or equity may be very pleased to note that following drops of 0.03% and 0.06% to 3.06% and 3.33% respectively, the average two- and five-year fixed rates have fallen even further to reach another record low this month.”
The difference between the average two-year fixed rate and the average standard variable rate (SVR) is around 2%, meaning there is still the potential to make big savings by locking into a deal.
Opportunity in buy-to-let
By contrast, buy-to-let mortgage rates appear so far relatively unchanged by the base rate rise. According to a mortgage tracker released by Property Master, mortgage rates in this space stood at an average 1.69% in January – the same as in November and just 0.01% higher than December.
However, most in the industry agree that another base rate rise will be on the cards in the not too distant future, which is likely to push rates up further for borrowers. Landlords are therefore currently being “cushioned” from increased borrowing costs.
Angus Stewart, chief executive of Property Master, said: “The question is for how much longer given that the expectation is growing the Bank will move again in the first week of February. This could very well be a small window for landlords to bag a good rate before the market moves more decisively into a rising interest rate environment.”
Borrowing for limited companies, HMOs and holiday lets
The tracker from Property Master also looks at more niche areas of landlord borrowing.
Investors who run rental homes through limited companies can typically expect to pay more for mortgages than individual landlords. Based on a 60% LTV with a £160,000 loan on a two-year fixed product, the rate is 0.11% more, with a £54 monthly cost difference.
For HMOs, the tracker found that the average two-year fixed rate at 60% LTV is currently 3.8%. For a five-year fixed rate, this rises to 4.49% on average.
Owners of holiday lets will have slightly lower mortgage rates, of around 3.52% for a two-year fixed rate with 60% LTV. To lock in for five years, this rises to an average of 3.75%.
Eleanor Williams adds: “With the potential for the Bank of England to apply further increases to the base rate in the coming months, there is no guarantee that the cost of borrowing on mortgages will not continue to rise overall.”
“As the threat of rising inflation and potential for the cost of living to continue to rise and squeeze household budgets even more, there may be borrowers prompted to act sooner than perhaps they might have planned to in considering securing a new mortgage deal.”