To fix or not to fix?

Record-low fixed rates are edging up as lenders prepare for a base rate rise - the best five-year fixed rate is now 2.95%.

Five-year fixed rate mortgages are edging up from their record lows as the mortgage market prepares for a base rate rise. Borrowers looking to lock in a long-term fix are being urged to act quickly to secure the best possible rates.

Santander, Natwest, Nationwide, Yorkshire Building Society, Clydesdale Bank and Tesco Bank have all increased the rate on their five-year fixed deals or withdrawn products altogether over the last two weeks.

The best five-year fixed rate has risen from 2.44% in July to 2.95% now, and this is available from Natwest and Barclays subsidiary Woolwich, both at 60% loan to value. Natwest charges a £995 fee and Woolwich charges £999.

Rates are still competitive, but the tide is turning and more lenders are expected to push their prices up. You tend to see a domino effect once a handful of lenders start changing their pricing.

Borrowers looking to fix should not wait until just before a base rate rise. Lenders are proactive and prepare for changes well before they happen. We will inevitably see rates continue to edge up this year as we get closer to a base rate rise.

Five-year fixed rate mortgages have been cheap for some time, thanks mainly to the record-low 0.5% base rate and the Government’s Funding for Lending scheme, which allowed lenders to access cheap money. But the Government withdrew Funding for Lending for mortgages this month and swap rates – which lenders use to price their loans – have been edging up, making it more expensive for lenders to access funding.

Simon Gammon, head of Knight Frank Finance, said even though the Bank of England maintains that the base rate will not increase in the immediate future, the likelihood of a rise earlier than the forward guidance of 2016 is “building dramatically”. He said this is why swap rates are rising even though base rate was held at 0.5% this week. He said there is still an opportunity for borrowers to secure cheap fixed borrowing this year, but lenders are expecting to receive an increased number of mortgage applications.

“We have already witnessed many lenders over the last few years pick and choose the best borrowers, and mortgage application declines have at times been very high,” he said. “Expect this trend to re-appear more as the number of borrowers, wanting to fix their rates, increase. The message then is get in early while they is still appetite to lend and many banks have large targets for this year to hit.”

This week Santander increased its range of three and five-year deals by up to 0.15%. This took its cheapest five-year fix from 2.99% to 3.09%.

Natwest increased its 2.88% five-year fix to 2.95%, while Nationwide increased its three and five-year fixed rates by 0.10% - taking its lowest five-year fix from 2.99% to 3.09%.

Yorkshire withdrew its leading 2.69% five-year fix last month and this week increased its 2.84% deal to 3.09%.

Tesco Bank withdrew its 2.79% deal last week and didn’t replace it.

So the message is very clear - if you want to ensure that you don't get caught by an increase in mortgage rates, you need to act sooner rather than later!