What next for mortgage rates? More cuts arrive so should you fix now?

• e-mail

Several months after the Bank of England slashed the base rate to 0.25 per cent and lenders are still cutting mortgage rates on almost a weekly basis - but how low can they really go?

The experts say not a lot lower: lenders will continue to tinker with their cheapest rates, raising and lowering them by the odd 0.1 per cent here and there but it's likely that if you get a mortgage at the moment, it's going to be a pretty cracking deal. 

The very best and cheapest deals on offer are for those with a substantial whack of equity to put in but there are competitive rates across the board, even for those with just a 5 per cent deposit.

House prices are high but borrowers are getting assistance from record low mortgage rates

It's therefore worth thinking about remortgaging if you've come to the end of your deal and are sitting on your lender's standard variable rate. 

In spite of the Bank of England cutting the base rate in August, research from Moneyfacts out in October revealed that a quarter of lenders had still not passed lower rates onto homeowners on SVR.  

Partly this could be down to the uncertainty caused by the Brexit vote in June and, indeed, mortgage brokers issued a warning to borrowers after Prime Minister Theresa May confirmed she would trigger Article 50 by March 2017, kick-starting two years of negotiation between Britain and the European Union to decide the terms of the UK's exit.

Unless you have a good reason to take a two-year fixed rate, such as needing to move or expecting to have to sell your home, brokers suggested that five-year fixed rates might be a cheaper long-term bet.

Rates may stay low for the foreseeable future but if lenders are worried about the effect of Brexit, they are likely to make it harder for borrowers to get a mortgage by making their affordability and income tests harder to pass. 

Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move. You can check best buy tables and the best mortgage rates for your circumstances with our calculator powered by London & Country.

What are the best deals?

It is currently possible for those with the biggest deposits to fix for five years at just under 2 per cent, while those with 10 per cent to put down can fix for five years at under 3 per cent.

For two-year fixes, the lowest rates are now less than 1 per cent if you have a big deposit and 2 per cent if you have just 10 per cent.

Those looking to buy a home or remortgage will find that now is a good time to look for a home loan, with record low mortgage rates on offer.

Many are still being nudged by brokers into taking out two-year fixed rate mortgages, yet it is wise to question if this is the best move. 

The attraction of a two-year fix may be lower rates now and extra flexibility, but that comes at the expense of needing to remortgage in two years to avoid slipping onto a more expensive standard variable rate.

Even though many lenders have passed on the base rate cut of 0.25 per cent to borrowers on SVR, that won't mean everyone benefits. Lenders such as Nationwide are bound to pass on the cut to borrowers who went onto SVR before 29 April 2009 but anyone coming to the end of their deal since goes onto the lender's standard mortgage rate - which the lender can change at its own discretion.

A five-year fix gives the opportunity to lock into a low rate for a longer period and avoid extra fees and higher rates in a relatively short time.  

What is happening with rates?

Prospective rate rises have been pushed into the distance by overwhelming uncertainty following the result of the EU referendum and the latest move by the Bank of England to cut the base rate.

In mid-October Mark Carney, governor of the Bank of England said formally that he was prepared to tolerate inflation exceeding the Bank's target of 2 per cent, above which under normal circumstances a base rate rise might be anticipated.

In August inflation was 1.6 per cent, leaving comfortable room for rising prices before the question of raising the base rate arises.

But, as Marmite-gate highlighted, pressure on the pound is already feeding through into the cost of goods and experts have warned inflation is likely to rise over the coming months.

Given the risk to people's job security however, the Bank is highly unlikely to reverse its August decision to cut the base rate to 0.25 per cent any time soon as a result.  

Can you get a mortgage? 

Banks and building societies have broadly got to grips with the tougher new mortgage rules introduced in April 2014. 

These produced a marked slowdown in lending and home sales but transactions have now risen back towards the level they were at previously.

Getting a mortgage is tougher though. You will need to get your finances in order and be prepared for the lengthier application process and in-depth affordability interviews getting a mortgage requires nowadays. Lenders also apply different standards to what they will lend.

Weigh up the above, check the rates below and in our best buy tables, have a scout around what the best deals look like – and speak to a good independent broker.

There are a couple of things to look out for if you do decide to fix.

You need to check the bumper arrangement fees are worth paying – if you don’t have a big mortgage you may be better off with a slightly higher rate and lower fee.

It’s wise to also think carefully about whether you expect to move home soon. A good five-year fix should be portable, so you can take it with you.

But your new property will need to be assessed and you might need to borrow extra money, and so your lender could still say no. Getting out of a fix typically requires a hefty hit to the pocket from early repayment charges.

Today's low rates may stick around, they may even inch a little lower, but they may also be swiftly axed.

If you think you’d kick yourself if you miss out on one, then set aside some time to consider what to do. 

Fix vs tracker: where are the best rates?

Borrowers should have a quick look at the rates below, these are regularly updated by This is Money's mortgage team. If you spot a deal you think has been pulled or should be in there, email us via editor@thisismoney.co.uk with mortgage rates in the subject field.

For a full rate check use This is Money's mortgage finder service and best buy tables, these are supplied by our independent broker partner London & Country. 

When dealing with any broker, remember some lenders will not usually be included as they do not pay commission, some of these such as HSBC and First Direct consistently offer top rates, so check their deals.

Fixed-rate deals

Bigger deposits (40/35 per cent deposit)

Five-year fixes

HSBC has a 1.84 per cent deal with a £1,172 fee for borrowers with a 40 per cent deposit or equity stake.

First Direct has a 1.84 per cent deal with a £1,658 fee for borrowers with a 40 per cent deposit or equity stake.

Tesco Bank  has a 1.89 per cent deal with a £995 fee for borrowers with a 40 per cent deposit or equity stake. 

Two-year fixes

HSBC has a 0.99 per cent rate with a £1,672 fee for borrowers with a 35 per cent deposit or equity stake.

HSBC also has a 1.09 per cent rate with a £1,172 fee for borrowers with a 40 per cent deposit or equity stake. 

Mid-range deposits (25 per cent deposit)

Five-year fixes

HSBC has a 1.99 per cent rate with a £1,172 fee. 

Accord has a 2.04 per cent rate with a £1,200 fee.

Two-year fixes 

Leeds Building Society has a 1.19 per cent deal with a £1,499 fee.

HSBC  has a 1.24 per cent deal with a £1,172 fee.

20 per cent deposits

Five-year fixes 

First Direct  has a 2.14 per cent deal with a £1,658 fee.

Furness Building Society has a 2.18 per cent deal with a £999 fee.

Two-year fixes

Yorkshire Building Society has a 1.44 per cent deal with a £1,180 fee.

Skipton Building Society has a 1.48 per cent rate with a £995 fee.

Smaller deposits (15 per cent deposit)

Five-year fixes

Yorkshire Building Society  has a 2.29 per cent rate with a £1,180 fee.

Hinckley & Rugby Building Society  has a deal at 2.29 per cent with a £999 fee. 

Two-year fixes

Yorkshire Building Society  has a 1.44 per cent rate with a £1,180 fee.

HSBC has a 1.49 per cent deal with a £1,172 fee.

10 per cent

Five-year fixes

Hinckley & Rugby Building Society has a 2.79 per cent rate with a £999 fee.

Furness Building Society   has a 2.88 per cent rate with a £999 fee.

Two-year fixes

HSBC has a 1.99 per cent rate with a £1,172 fee.

Nottingham Building Society has a 1.99 per cent rate with a £999 fee.

5 per cent

Five-year fixes 

The Melton Building Society  has a 3.89 per cent rate with a £638 fee.

Furness Building Society  has a 3.98 per cent rate with no fee.

Two-year fixes 

Nottingham Building Society  has a 3.29 per cent rate with a £999 fee.

Hanley Economic Building Society has a 3.40 per cent rate with a £250 fee.

Additionally the Government has launched a Help to Buy guarantee scheme that provides an indemnity of up to 15 per cent for lenders to allow them to offer mortgages for a 5 per cent deposit - it is coming to a close at the end of the year. 

You can work out monthly and total costs for any mortgage deal you see by using This is Money's true cost calculator here. 

Trackers

Tracking a 0.25 per cent base rate may seem an odd decision when you could fix for up to five years at a lower rate, however, there is one big advantage to a good lifetime tracker - flexibility.

A fixed-rate mortgage will almost inevitably carry early repayment charges, you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up. 

You should be able to take a good fixed mortgage with you if you move, most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.

A good lifetime tracker has no early repayment charges, you can up sticks whenever you want and that suits some people.

Tracking at a low rate looks good now, especially when rates are not predicted to go up for the next three and not rise substantially over the next five years, but that may not turn out to be the case, so make sure you stress test yourself against a sharp rise in base rate.

Lifetime trackers 

HSBC has a lifetime tracker charging Base +1.49 per cent with a £1,172 fee for borrowers with a 40 per cent deposit or equity stake.

Two-year deals 

However, it’s also possible to track for a much shorter period of time. 

TSB has a two-year tracker at Base + 0.99 per cent (effective rate of 1.24 per cent) with a £995 fee for borrowers with a 40 per cent deposit or equity stake.

TSB has a two-year deal at Base + 1.29 per cent (effective rate of 1.54 per cent) with a £1,089 fee for those with a 20 per cent deposit.

For a smaller deposit of 10 per cent, Tesco Bank has a two-year rate at Base + 2.25 per cent with a £995 fee. 

Should you get a new mortgage? And what to get?

Certainly, those on standard variable rates of 4 per cent or higher with reasonable equity in their home should seriously consider moving. They have two main options.

Tracker

One option is a fee-free, early repayment charge free, life-time tracker. This could shave money off their monthly repayments - or leave them equal - and ensure their rate will only rise when base rate does.

Fix

Many could grab a fix and pay less than they are now.

If you are on an SVR you should seriously think about moving, unless you have a Nationwide/C&G-style guarantee capping it at a certain level above base rate - even then you may now be able to save money.

Events have highlighted the vulnerability of standard variable rates and discount rates linked to them, with Santander's rise following mortgage giant Halifax raising its SVR, along with Bank of Ireland, Co-op and Clydesdale/Yorkshire Banks. RBS also raised rates for 200,000 borrowers with Offset and One Account mortgages.

Unlike standard variable rates, which are at the mercy of bank's whims, trackers will only move up if the base rate rises.

Why fix for five years or track for life?

At This is Money we have typically favoured five-year fixes and lifetime trackers over two or three year deals.

The first give a good rate and security over a medium term period for those who want it, the second should allow borrowers to leave without incurring early repayment charges.

By contrast two or three year deals have slightly lower rates but will incur more remortgage fees and require borrowers to be looking around for a new mortgage just as rates may be starting to rise.

That said two-year fixes are offering some extremely low rates at the moment - and so could be worth a look, however, you must make sure paying fees makes them worth it.

The gap between a top five-year fix and a best lifetime tracker has substantially narrowed

Five-year fixes are cheap money locked in for a decent term and very tempting, but make sure you read the small print - ensure it can move home with you if needed - and compare costs including fees to see what is best for you. Use our True cost mortgage calculator to see how rival deals stack up. 

Safety first or take a gamble

The appeal of a five-year fix to both buyers and remortgagors is the longer term security it gives and that there is no need to remortgage in a short period of time, when rates are likely to be higher.

Homeowners should check that deals they are looking at are portable, and can therefore go with them if they move home.

Never forget the pay rate on trackers will rise when the base rate does.

The bigger margin on fixed rates means that borrowers willing to take a gamble on rates rising slowly are being tempted by tracker rate mortgages.

Those happy to take a punt on rates rising slowly can save money over time by opting for a tracker but they need to be comfortable with the risk of higher payments and factor in a decent safety margin when working out future mortgage costs. 

Big fees vs rates

The best rates require big fees, but in most instances, fee-free or low-fee options are available and that highlights how vital it is for borrowers to work out if a big fee-low rate mortgage is worth it for them.

Typically, the bigger your mortgage the more worthwhile it is paying a large fee, although watch out for those that are a percentage of your loan. 

Choosing a mortgage - the essential quick guide

1. How big a deposit do I need?

To get the full choice of deals raising a decent deposit is still vital. The benchmark figure is 25 per cent, if you have this then you'll be getting close to the best rates, although for an absolute cheapest deal you're still likely to need 40 per cent.

However, things are looking up for homemovers and first-time buyers who can't raise that hefty quarter of a property's value. A selection of better deals for smaller deposits is also now available.

2. Should I take a fixed rate?

Borrowers face a tough decision on this, as fixed rates are comparatively expensive by comparison with tracker deals.

The consensus is that there will be no dramatic sudden increases. However, these forecasts are no guarantee that rates won't rise and when rates rise trackers will get more expensive. [Remember almost no one forecast base rate heading down to 0.5 per cent]

Borrowers needing security should consider the extra cost of a fix as worthwhile. If you are taking a tracker because you couldn't afford the equivalent fixed rate then you are putting yourself in a very dangerous position.

If you decide to take a fix you need to carefully consider how long for. Two year deals are cheap but only offer very short-term security and incur extra costs when you remortgage. Five year deals lock you in for longer and come with slightly higher rates but better security and no need to remortgage in a relatively short space of time.

3. Should I take a tracker rate?

Tracker rates are cheaper than fixes but they should come with a massive warning sign attached, as essentially they are a gamble.

What looks like a bargain rate now, could soon get very expensive when interest rates rise.

Anyone considering a tracker needs to make sure they are not just storing up a problem for the future. If the tracker comes with an early redemption penalty that would make it expensive to jump ship, then make sure your finances could take a rise of at least 2 per cent to 3 per cent in interest rates.

For that reason we at This is Money like tracker deals that fit into one of these three categories: no early redemption penalties, a cap to how high the rate will go, or that let you jump ship for a fixed rate if rates rise.

4. Should I get off a standard variable rate?

Standard variable rates are what borrowers slip onto by default when they finish a fixed or tracker deal period.

They can typically be changed by lenders at any time - without the Bank of England moving rates, they may also rise or fall by more than any move in base rate.

A number of mortgage borrowers have fallen victim to lenders hiking their standard variable rates in recent years, despite the base rate remaining stable.

Never forget than without a Nationwide-style base rate lock guarantee, your SVR could be hiked at any time, as could a discount rate linked to it.