Goodbye, cheap fixed mortgage deals

Last week fixed-rate mortgage deals rose significantly, and they are set to go up further.

As widely predicted a number of the country's largest lenders increased their fixed rate mortgages last week, making them far less appealing to borrowers.

A week and a half ago my fellow lovemoney.com writer, Jane Baker, warned readers to Fix your mortgage rate before it's too late -- and she was right to do so. Since then many of the best deals have disappeared and been replaced with more expensive ones.

But many borrowers are looking for the security of fixed rates, believing that mortgage rates have bottomed out and aiming to protect themselves from future rate rises. In April, 69% of borrowers took out fixed rate mortgages, according to the Council of Mortgage Lenders - the highest share since June 2008.  And Legal & General's Mortgage Club saw almost 90% of borrowers take a fixed rate in the second quarter of this year.

Even those borrowers who suspect that a variable rate could work out cheaper over the next few years (myself included) might still opt for the security of a fixed rate deal. In my case, I can't take the risk of higher repayments.

What happened to fixed rate mortgage deals last week?

Last week average two-year fixed rates jumped 0.16% between Monday and Friday from 4.74% on to 4.90%, according to lovemoney.com partner Moneyfacts.

The average five-year fixed rate rose by even more last week, climbing 0.21% from 5.61% on Monday to 5.82% on Friday.

And there are now 50 fewer fixed rate deals on the market to choose from.

Nationwide increased its fixed rates by up to 0.86% on Friday 12th June and again this week by up to 0.5%. The lender was quickly followed by a raft of other lenders including Halifax, Chelsea, Principality, Cheltenham & Gloucester, Northern Rock, Abbey, Woolwich, RBS, and NatWest.

Why have fixed rate mortgage deals gone up?

Swap rates, which reflect the cost of fixed rate money to lenders, have been rising for the last few weeks, although ironically they actually dipped slightly last week. However, lenders are catching up with these increased costs -- and passing them on to borrowers.  

But it's not just a case of lenders' costs increasing. Their profit margins have also widened significantly in the last year according to Moneyfacts. In June 2008 when average fixed rates peaked at over 7%, a lender's typical profit margins were just 0.76%. Now fixed rates may be lower, but profit margins are much higher - at more than two percentage points above swap rates.

Any good fixed rate mortgage deals left?

There are still some decent fixed rates left and the message is still the same -- move quickly to bag the best deals if you want a fixed rate.  

This is not scaremongering. I applied for a mortgage on 12th June with NatWest at 3.99%. The rate has now shot up to 4.39% although apparently I will still qualify for the lower rate because I had made my application before the rate change - I'm still waiting for my full offer and keeping my fingers crossed.

The following are some of my favourite current fixed rates. I've included a range of durations, minimum deposits required and fee sizes.

*This rate is available as part of HSBC's current Rate Matcher offer

Time to track?

The increases in fixed rates have made variable deals look even more appealing than they already were, as I explained recently in The virtues of variable rate mortgages.

For existing borrowers coming to the end of a deal, you might find that your lender's SVR is extremely low and could be worth sitting on for a while to take advantage of cheap monthly repayments.

Even if your lender's SVR is not that low you may still prefer one of the cheap tracker deals on offer to a high fixed rate. Some of these rates have been cut in the last week, making them even more tempting. For example Abbey cut its two-year tracker rates by 0.20%, to 3.29%, while increasing rates on its fixed-rate range.

It goes without saying that the big drawback of a variable rate is the potential for your pay rate to go up.

My favourite mortgage trackers

Below are some of my favourite trackers:

Compare mortgages with lovemoney.com