Think twice before gambling with a cheap mortgage

borrowers They are urged to snap up a cheap mortgage due to high fixed rates of interest to think twice.

And experts warn that while their repayments will be lower now, it could cost them thousands of pounds in the long run.

Tracking or variable interest loans used to be very popular and in 2009 they accounted for seven out of every ten new mortgages.

But they fell out of favor after the financial crisis, when interest rates fell.

This has lowered the cost of fixed-rate loans, which protect borrowers from sudden increases in bills.

So, for many, keeping a cheap fix seems like a no-brainer – and only one in 11 high-profile mortgages is now tracked, according to UK finance figures.

However, brokers say that as the cost of fixed deals has risen, many borrowers’ minds have changed. Emma Jones, owner of Alder Rose Mortgage Services, says, “We’ve seen a rise of about 10 per cent in interest on mortgages that follow the Bank of England’s key rate. Many are attracted to the down payments, which can be much lower than current reforms.

The two-year average flat rate jumped to 4.09 percent, compared to 2.52 percent in August last year, according to data analysts Moneyfacts.

The typical two-year tracker is cheaper at 3.33 percent on average, up from 2.35 percent 12 months ago.

When it comes to higher rates, the best two-year fixed deal for a borrower with a 40 percent deposit is 3.24 percent with Barclays.

However, Skipton has a two-year tracker of 0.66 percent in addition to the base rate. This is currently 1.75 percent, for a total of 2.41 percent. On a typical £150,000 loan this is cheaper at £64 a month, or £768 a year.

But analysts expect the Bank of England to raise the benchmark interest rate by at least 0.25 percentage point next month.

Capital Economics expects five increases in the base rate between now and May, and experts expect it to peak at 3 percent before starting to decline in the latter half of 2024.

Based on its forecasts, analysis by broker L&C shows that a borrower with a 10 per cent deposit would end up paying an extra £688 a year in interest if they chose the cheapest two-year tracker on the market over the best two-year fix. And if they have a £450,000 loan, they will pay £4,127 over two years.

The gap is smaller for those with larger deposits. But even a borrower with a 40 per cent deposit, who borrows £150,000, will still pay an extra £165 each year if he chooses a tracker over a fix.

Compare monthly costs on fixed and tracked mortgages and check out the best deals you can apply for with our best mortgage rate calculator.

The other outlook is bleaker for those who bet on the underlying price. Realtors warn that if homeowners change their minds later, the cost of the repair will be even higher as lenders frantically pull their best deals.

This could be disastrous for borrowers who have stretched themselves out for larger loans.

“Most people would agree that, just like energy prices, mortgage rates will continue to rise,” says Dominic Lipnicki, of Your Mortgage Decisions. very serious.

But some experts believe that lenders may deliberately set fixed high rates, and that rates can fall.

Some of the cheapest solutions may be pulled by lenders in a matter of days because they can’t handle the demand, says Jane King, mortgage advisor at Ash-Ridge Private Finance. For those who can handle the increased payout risk, gambling on an underlying price tracker may still be attractive.

She adds that one of her clients switched to a tracker deal just last week, and their monthly payments are £90 less than they would have paid with the fix.

“As with any type of mortgage, it all depends on your personal risk,” says King.

Banks and building societies have been flooded with mortgage applications and the average deal has now only been in the market for 17 days, according to Moneyfacts.

f.parker@dailymail.co.uk