Although the Bank of England left base rates on hold last week, many experts say there is no better time to take out a mortgage. Some observers expect a further cut in interest rates in the next few months. But mortgage brokers caution that a cut might not be passed on in full to borrowers. Simon Tyler, managing director of Chase de Vere Mortgage Management, a London home loan broker, says: "Base rates may come down by another 0.25 percentage points, perhaps a little more. "But it is not clear how much further [mortgage] fixes can fall. If they dropped by that amount in the next few months, we would be talking about some of the cheapest rates since January 1955."
Ray Boulger, senior technical manager at mortgage broker Charcol, adds that even if base rates fall further, the full cut might not be passed on to borrowers. "I would expect lenders to reduce rates by 0.15 or 0.2 percentage points, not the full amount. As for fixed rates, five-year deals have fallen by up to 1 per cent in the past year in spite of variable rates remaining unchanged in that time." What all that suggested, Mr Boulger added, was that "expectations of a further rate drop, particularly in relation to fixed rates, are unlikely to be met".
Simon Jones, associate director at Savills Private Finance, a London-based mortgage broker, adds that, while interest rates may fall further, the possibility of a drop has already been factored into longer-term rates by the market. "Of course, there could be a global disaster or significant stagnation requiring a further interest rate stimulus next year," he adds. "But a lot of people feel that a war premium has already been built into the rates being charged."
Mr Jones says: "The interesting thing this year is how the combination of competition and the current state of the economy is delivering some of the lowest mortgage rates in almost 40 years." What of borrowers who believe variable rates are unlikely to rise soon and want to take advantage of potential future falls? Mr Boulger believes tracker mortgages are best for them. Trackers are linked to base rates and rise or fall automatically in line with Bank of England decisions.
A deal from Mortgage Express is among the cheapest trackers on offer. The interest payable is currently 0.32 percentage points below base rates for two years, giving an effective rate of 3.68 per cent. The mortgage has no redemption penalty and interest is charged monthly. The deal includes free valuations and legal fees. For those willing to pay their own fees, the tracker rate extends to 0.52 points below base rate. Mr Boulger suggests that this might suit someone who wants a very large mortgage, where the interest rate saving could offset the charges.
Mr Tyler argues that borrowers should consider longer-term fixes. "We know that fixed rates are relatively unpopular at the moment," he explains. "Most people are keener on the idea of discounted rates and it's true that there are some very good deals which can seem cheaper than their fixed rate counterparts. "My own view, however, is that we are unlikely to see again long-term fixes of five years or so as low they are today. Rates charged are as low as 4.5 per cent. For anyone who is unsure of what may be happening to his or her job and wants some price stability going forward, a five-year fix at today's prices is an excellent deal."
Both Chase de Vere and Charcol offer a Bristol & West five-year fixed package, priced at 4.45 per cent. Redemption penalties apply within the fixed period. An application fee of £399 applies. Shorter-term fixed rates are available from Stroud & Swindon building society, priced at 3.75 per cent over two years. The fee of £474 is relatively high, but the deal includes free valuation and legal fees on remortgages. Interest is charged monthly. For borrowers who are prepared to gamble that interest rates will continue to fall in the medium term - and stay low - - a discounted mortgage may be the best option.
Ray Boulger, senior technical manager at mortgage broker Charcol, adds that even if base rates fall further, the full cut might not be passed on to borrowers. "I would expect lenders to reduce rates by 0.15 or 0.2 percentage points, not the full amount. As for fixed rates, five-year deals have fallen by up to 1 per cent in the past year in spite of variable rates remaining unchanged in that time." What all that suggested, Mr Boulger added, was that "expectations of a further rate drop, particularly in relation to fixed rates, are unlikely to be met".
Simon Jones, associate director at Savills Private Finance, a London-based mortgage broker, adds that, while interest rates may fall further, the possibility of a drop has already been factored into longer-term rates by the market. "Of course, there could be a global disaster or significant stagnation requiring a further interest rate stimulus next year," he adds. "But a lot of people feel that a war premium has already been built into the rates being charged."
Mr Jones says: "The interesting thing this year is how the combination of competition and the current state of the economy is delivering some of the lowest mortgage rates in almost 40 years." What of borrowers who believe variable rates are unlikely to rise soon and want to take advantage of potential future falls? Mr Boulger believes tracker mortgages are best for them. Trackers are linked to base rates and rise or fall automatically in line with Bank of England decisions.
A deal from Mortgage Express is among the cheapest trackers on offer. The interest payable is currently 0.32 percentage points below base rates for two years, giving an effective rate of 3.68 per cent. The mortgage has no redemption penalty and interest is charged monthly. The deal includes free valuations and legal fees. For those willing to pay their own fees, the tracker rate extends to 0.52 points below base rate. Mr Boulger suggests that this might suit someone who wants a very large mortgage, where the interest rate saving could offset the charges.
Mr Tyler argues that borrowers should consider longer-term fixes. "We know that fixed rates are relatively unpopular at the moment," he explains. "Most people are keener on the idea of discounted rates and it's true that there are some very good deals which can seem cheaper than their fixed rate counterparts. "My own view, however, is that we are unlikely to see again long-term fixes of five years or so as low they are today. Rates charged are as low as 4.5 per cent. For anyone who is unsure of what may be happening to his or her job and wants some price stability going forward, a five-year fix at today's prices is an excellent deal."
Both Chase de Vere and Charcol offer a Bristol & West five-year fixed package, priced at 4.45 per cent. Redemption penalties apply within the fixed period. An application fee of £399 applies. Shorter-term fixed rates are available from Stroud & Swindon building society, priced at 3.75 per cent over two years. The fee of £474 is relatively high, but the deal includes free valuation and legal fees on remortgages. Interest is charged monthly. For borrowers who are prepared to gamble that interest rates will continue to fall in the medium term - and stay low - - a discounted mortgage may be the best option.
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