HOMEOWNERS may soon be able to breathe a sigh of relief as three major lenders have cut their mortgage rates after hiking them due to the conflict in the Middle East.
HSBC, Santander and TSB have all slashed rates this week in a gentle sign that confidence is returning to the market.
TSB reduced selected fixed-rate mortgages by up to 0.45 percentage points from today.
Meanwhile, HSBC slashed some of its deals by 0.34 percentage points and Santander cut rates by up to 0.28 percentage points.
HSBC is one of the largest high street lenders, so the fact it is repricing rates could nudge other banks to slash the cost of their deals too.
But the ongoing political situation and its impact on the economy may change at any time, which could push up mortgage rates.
As a result, this could be a rare window of opportunity to lock in a cheap deal.
The conflict in the Middle East had thrown the mortgage market into turmoil as experts predicted that it could increase the cost for banks to borrow money.
As a result, banks put their plans to cut rates on hold as they waited to see what would happen.
Most banks set their prices based on “swap rates”, which are the rates at which banks trade money with each other based on what they think will happen.
When the economy is stable it means that rates usually go down, so banks can lend you money more cheaply.
But the conflict in the Middle East caused the price of oil and gas to soar, which has made everything more expensive and pushed up swap rates as the market expects fewer Bank of England rate cuts.
Markets had expected two interest rate cuts this year, which could have seen the base rate fall from 3.75% to 3.25%.
As a result, mortgage rates could have fallen as lenders priced in the likelihood that borrowing costs would continue to drop.
But rate cuts are now only expected if the conflict in Iran is resolved and the Strait of Hormuz is reopened, according to Kallum Pickering, chief economist at Peel Hunt.
Although lenders are now cutting the cost of their deals, rates are still higher than they were at the beginning of the year.
A typical five-year deal now has a rate of 5.76%, up from 4.95% before the conflict began, according to MoneyfactsCompare.
Meanwhile, an average two year deal has risen from 4.83% to 5.87% in the same period.
If you need to remortgage soon then don’t panic.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “For anyone heading towards a remortgage, the sensible move is still to act early.
“Once you are within three to six months of your current deal ending, it makes sense to secure a rate and keep it under review.
“That way, you are covered if pricing turns again, but still in a position to move if lenders come back with something better before completion.”
Meanwhile, you could also consider a tracker mortgage, which is linked to the Bank of England base rate.
This means your monthly payments can go up or down depending on the wider economy.
The top tracker mortgages are currently cheaper than the best buy fixed rate deals.
But before you race to take out one of these deals it’s important to make sure you can shoulder the cost if rates skyrocket.
Use a mortgage calculator to check that you would be able to keep up with your repayments if rates skyrocket.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
