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Think twice before rushing to switch mortgage deals, warns Royal London

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Homeowners should think twice before incurring exit charges to secure a fixed rate mortgage, says insurance group Royal London.

Its analysis showed that some providers have held or even cut rates following the recent interest rate hike, against widespread expectations that the Bank of England’s (BoE)’s interest rate rise would raise the cost of mortgage borrowing.

Royal London analysed the fixed interest rates offered to new borrowers by HSBC and Nationwide on Friday 13 October 2017. This was compared to the new rates these lenders published three weeks later on Friday 3 November 2017 following the BoE’s announcement. While the cost of tracker and standard variable mortgage rates rose, the cost of borrowing at a fixed rate with HSBC for two, three and five years at 60%, 70%, 75%, 80% and 90%  loan-to-value (LTV) had not changed.

Nationwide’s new range of products offering mortgage borrowing at a fixed rate for ten years had actually fallen by between 0.30% and 0.45%, while for a range of other fixed rate mortgage products the cost of borrowing either stayed the same or fell by up to 0.15%.

Fixed rate mortgages are usually priced from the price of longer-term gilts. The rate rise had largely been reflected in the price of long-term gilts before it happened. On the day, Bank of England governor Mark Carney was more pessimistic on the prospects for future interest rate rises, which pushed gilt yields lower. In this way, banks have not yet been forced to hike their fixed rates.

Helen Morrissey, personal finance specialist at Royal London, said: “It was widely expected that the interest rate hike would increase the cost of mortgage borrowing and while this is certainly the case for tracker mortgages, the analysis shows that some banks have not chosen to hike their fixed rate rates as yet.

“The Bank of England’s announcement should calm people’s nerves as low interest rates look like they are here to stay for some time yet and so borrowers should think carefully before incurring early exit penalties in a bid to secure a quick deal. Borrowers should take the time to do their research or seek advice where necessary.”

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