GET your skates on – now is the time to grab a ‘sweet spot’ mortgage before rates could creep up later this year.
Earlier this week, the Bank of England held its base rate at 3.75 per cent.
While that usually means mortgage rates — and your bill — won’t change much, the word on the street is this won’t last for long.
Rachel Springall from the comparison site Moneyfacts says now is not the time to dawdle.
“It is highly unlikely that lenders will make substantial cuts in the months ahead, until there is a clearer path for future rate setting,” she says.
Don’t panic — this is the perfect time to lock in a deal if you’re remortgaging or looking to buy. HOLLY THOMAS explains.
WHAT’S HAPPENING?
THERE are plenty of people hunting for a new mortgage deal.
Around 1.8million people — many of whom will have fixed when interest rates were at rock bottom five years ago — will see their deals end this year, according to UK Finance.
Meanwhile, buyers have been provided a great opportunity to bag a bargain.
Average house prices have fallen by more than £2,000 this month in a shock summer slump thanks to heatwaves and the higher cost of living caused mainly by the Iran War.
If you’re hunting for a new deal, now is the time to move.
Markets are predicting THREE base rate hikes by the end of 2026 — which could take it from 3.75 per cent to 4.5 per cent.
When the base rate is expected to go up, mortgage rates usually follow in line — and cheap deals are quickly pulled from the market when this happens.
THREE-YEAR FIX
FIXED mortgage deals are popular. Many people want peace of mind over exactly what they will be paying each month.
But the big question is, how long should you fix for?
Homeowners may be tempted to opt for a two-year fixed deal, David Hollingworth from the broker L&C Mortgages says.
Earlier this week, Andy Burnham won the Makerfield by-election, which means a fight for No10 could be about to begin.
That means fixing for just two years could be a risk. We might have a new cabinet, and we don’t know what their plan for fixing the economy could look like.
This makes it difficult to know how markets will react — and what could happen to mortgage rates.
“We still have a good deal of uncertainty, not least in domestic politics,” David says.
“The amount of volatility in recent years, such as the mini-budget, has taught us just how quickly things can change, which could impact mortgage rates at the point when borrowers need to review their deal.
“Rather than coming out of a deal in a lower rate environment it could turn out to be quite the opposite.”
A longer-term fix could offer more stability. A popular choice is five years — but there’s the risk that mortgage rates could fall, meaning you are missing out on better deals while you’re locked in.
David says: “Although a longer-term fixed rate gives real security, there is a chance that rates could fall back and leave borrowers feeling like they’ve been left high and dry on a higher rate.”
Picking a halfway ground — a three-year fixed rate — could be the sweet spot.
“Three-year deals are often overlooked but may offer the right mix, giving more security of payment than the shorter-term deals but not requiring the longer tie-in of a five-year deal,” says David.
The average rate on a three-year fix is 5.35 per cent — which is cheaper than both two (5.59 per cent) and five-year fixed deals (5.57 per cent).
On a £200,000 mortgage with a 25-year term, your monthly mortgage bill would be £1,210 on a three-year fix, but £1,239 on a two-year fix.
That means picking a three-year fix would save you £29 a month — or £348 over a year.
Lenders usually let you find a new mortgage deal six months before yours is up.
So if you want to fix again, do it now. There’s nothing to stop you finding an even better deal if rates fall before your previous mortgage expires.
THE LONG-TERM TRICK
NEXT, you’ll need to decide the term of your mortgage.
The default length is usually 25 years. But more borrowers are choosing to extend this to 30 years or even more to lower the cost of monthly repayments, which means being able to buy a more expensive property than with a 25-year loan.
When it comes to the term of the mortgage, the general rule of thumb is that the shorter the term the less the mortgage will cost you over its lifetime.
While lengthening the term will mean lower monthly payments, it’s more expensive in the long run, as you pay interest for longer.
But it’s more expensive in the long run, as you pay interest for longer.
For a £200,000 mortgage with a 25-year term and five per cent interest rate, you’d pay a total of £150,882 in interest repayments.
But extending the term to 30 years means you’d pay £186,671 in interest — nearly £36,000 more.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “There’s a trick to benefit from lower mortgage bills that a longer term gives you, without shelling out too much money in interest.
“One approach may be to opt for the longest term you can to keep your payments low and options open, and then overpay as and when you can to reduce the mortgage and the term, giving you flexibility and saving you interest.”
If you overpaid just £10 a month on your £200,000 mortgage with a 40-year term with an interest rate of 4.75 per cent, you’d save £9,115 in interest and repay the mortgage over a year earlier.
And if you overpaid for five years and then switched to a 25-year term, you’d save £65,885 overall.
Just remember that everyone’s sweet spot home loan is different.
Make sure you get advice from a mortgage broker to see what works for your situation.
‘BNPL’ RULES LOOPHOLE
By Adele Cooke
MILLIONS of shoppers are at risk of not being protected by new rules to regulate Buy Now Pay Later deals.
From July 15, the Financial Conduct Authority will take charge of the sector and firms will be bound by the same rules as bank and credit card companies.
Lenders will have to carry out affordability checks, prove that customers can make repayments and be upfront about when payments are due.
When the new rules come into play, customers who are already in debt won’t be able to complain retrospectively.
As a result, millions will not be protected.
Some 5.3million people had outstanding BNPL balances in July 2025, the FCA said.
It is possible that some firms will apply the same rules to all customers, but there is no guarantee this will be the case.
Meanwhile, once it is regulated, BNPL will be similar to other forms of credit, where each lender decides the level of risk they’re willing to take.
This could mean that some customers are locked out of accessing BNPL deals, even though they could keep up with the repayments.
Sebrina McCullough, director of external relations at Money Wellness, said: “It’s very likely that some people who were previously offered BNPL pre-regulation won’t be able to access it afterwards.”
The Financial Conduct Authority was approached for comment.
PLANNING WAITS TO HALVE
THE amount of time it takes to get a home extension approved could soon be halved, thanks to AI.
Barnet, Camden and Dorset councils are testing a tool that aims to cut the time it takes to process household planning applications from an average of eight weeks to just four.
To save time, the prototype triages applications, summarises key information and provides planning officers with an initial assessment they can consider when making their decision.
If successful, the technology, which was created by government officials and Google DeepMind, Google Cloud, Faculty and local planning authorities, will be rolled out nationwide next year.
It will help homeowners who have been hit with lengthy planning permission wait times, as well as the Government, which has a goal to build 1.5million new homes by 2029.
Government officials have also rolled out another AI tool to help planning officers convert decades-old planning documents and maps into readily usable data in a matter of minutes.
Ian Murray, minister for data and modern digital government, said: “When someone wants to add a bedroom or convert their loft, they shouldn’t wait months for a straightforward decision.
“These tools give planning officers support to make quicker decisions – and give families the answers they deserve, faster.”
By Laura McGuire
