Two-year fixed-rate mortgage deals are looking more competitive compared to two-year discounts, according to Clear Cut Mortgages.
Two-year fixed-rate products were priced 95 basis points (0.95%) higher than two-year discount products before the last Bank of England interest rate rise. However, that gap has now closed to 79 basis points (0.79%). The best fixed-rate product on the market is a Portman Building Society two-year fix at 4.49%, against the best discount deal from West Bromwich priced at 3.7%.
Those looking for the best mortgage deal would do well to consider a fixed rate given the current market trends. Clear Cut suggests consumers switch as quickly as possible to the better fixes as the best two-year deals are likely to disappear and deals currently available are likely to go quickly.
Ben Thompson, director, Clear Cut Mortgages comments:
"The interest rate rises are prompting large numbers of people to remortgage, with the latest data showing that £9 billion was lent for remortgages, representing 44% of total lending in January 2004. People are clearly looking to get a better deal as rates go up and they realise just what a bad deal most lenders' standard variable rates represent.
"Before the February Bank of England interest rate rise, discounts were certainly the products to opt for. Interest rates would have had to go up by a full 1% before they represented better value than the best fixes available at that time.
"However, in the current market, that gap has closed. If borrowers think that rates could rise by 0.79% in the next two years - which, with an April rate rise on the cards, is a serious possibility - taking out a fixed-rate product now would seem a more sensible option for deal-hunters.
Clear Cut research shows that someone staying on a standard variable rate for the rest of the year would pay £6,000 in interest (based on an Abbey SVR of 6.00%) - and that assumes no further rate rises. However, a borrower on a Portman two-year 4.49% fixed rate product would pay just £4,490, a saving of 25%.
