Is it time to fix your mortgage?

Homeowners kicking back and enjoying sustained low rates on their mortgage could be jolted into taking action sooner than they thought...

Recent figures have revealed the annual rate of inflation leapt from 1.9% to 2.9% in December, prompting some economists to say that the Bank of England base rate - which has been slumped at 0.5% since March last year - may start to rise again, sooner than anticipated.
Current state of play

Tracker mortgages - that mirror movements in the Bank of England base rate - are by far the most popular deals, according to brokers. This is because, not only are initial rates cheaper than their fixed rate counterparts, but there has been a consensus that the base rate would not climb any time soon.

"People who have even just a little slack in the budget have been taking a calculated risk and opting for a tracker as interest rates looked set to stay low," explained David Hollingworth at mortgage broker L&C Mortgages. "The best tracker deals are priced about 2.5% to 3.0% on a two-year term, while the cheapest fix for the same period will cost from 3.5%."

But if base rate starts to climb, so will the monthly outgoings of those homeowners on tracker deals - and this is causing a marked shift in sentiment.

According to recent research from Santander Mortgages, of the 880,000 homeowners due to remortgage in the next six months, only 13% say they will opt for a tracker deal compared to 33% two months ago. And the number of those likely to opt for a fixed rate has increased from 20% to 23% in the last month alone.

Phil Cliff, director of mortgage marketing at Santander UK, said: "With many commentators predicting a base rate rise this year, homeowners now seem more inclined to play it safe with a fixed rate deal."

Getting into a fix

But what's out there for homeowners who want to fix in their rate? Some lenders have actually been edging down the prices of these deals. Santander recently slashed the rate on some of its two-year fixes by up to 0.4%. The bank now offers a deal priced at 4.99% in return for a 20% deposit and £995 fee.

Yorkshire Building Society was quick on its heels, launching a two-year fixed rate mortgage priced at 3.29% for borrowers with access to a 40% deposit. This represents the lowest two-year fix available direct to consumers, says the mutual - but be warned as the deal also comes with a hefty £1,195 arrangement fee.

And the end of last week saw Legal & General launch a range of two-year fixes in conjunction with Accord Mortgages. It includes a two-year fixed rate priced at 3.49% for those with a 25% deposit and a £995 fee. "Competitive fixed rate deals will be very attractive to anyone worried by the recent news on inflation," said Martyn Smith, the company's head of mortgage products.


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