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Five years of record low rates but cost of borrowing edging up

6th March 2014 Print

With March 5th marking the fifth anniversary since the Bank of England base rate dropped to a record low of 0.5 per cent,analysis by MoneySuperMarket shows how borrowers have benefited from low lending rates. However, the tide has started to turn with rates beginning to rise on some mortgages. The average APR on credit cards has also reached its highest level since July 2001.

Borrowers have been the winners of the low interest rate environment, but with speculation mounting that the Bank of England base rate will start rising again next year, the cost of some mortgages have already started to go up. Anyone, looking to re-mortgage or who is currently paying their lender’s standard variable rate, should therefore consider their options now before the cost of borrowing rises further.

Mortgages

Mortgage rates are still lower than pre-Credit Crunch levels but are steadily rising.  Average two-year tracker rates are currently 2.79 per cent, 0.29 percentage points higher than in February 2013. For fixed mortgages, average rates on two and three-year fixed rate mortgages have also noticeably increased compared to last year, with a current rate of 3.62 per cent for a two-year fix, and 3.97 per cent for a three-year fix – and are respectively just 0.17 and 0.55 percentage points lower than March 2009 levels. 

Clare Francis, editor-in-chief at MoneySuperMarket, said: “The low base rate is still good news for borrowers as mortgages continue to look extremely good value. However, they’ve already started to nudge upwards and with interest rate rises seeming likely from next year, homeowners should try and make the most of this whilst they still can.

“Millions of people are currently paying their lender’s SVR and these rates will start rising when base rate goes up, so now is the time to consider moving onto an alternative mortgage. Fixed rate deals are hugely popular at the moment as borrowers seek to protect themselves from rate increases.

“For those with money to spare each month, now is also a good time to overpay on your mortgage. Reducing the size of your debt will be beneficial in the long run when rates go up –which they will.”

Credit Cards

Borrowers looking to transfer existing debts to a market leading credit card have been able to benefit from some of the longest balance transfer deals on record, and providers continue to lengthen their deals.The current average balance transfer length is 29.8 months compared to just 14.7 months back in March 2009. However, the downside of record promotional offers is the fact that the average standard rate on credit cards has gone up 2.44 percentage points to 18.17 per cent APR – the highest levels since July 2001.

Clare Francis continued: “There is no doubt that borrowers looking to transfer existing credit and store card debts on to a balance transfer card have really benefited from renewed competition within the credit card market, with the ability to borrow interest free up to 31 months, up from 15 months five years ago. Similarly, deals on purchase credit cards and cashback and reward credit cards have become more generous. However, there is a sting in the tail, with those on standard rates paying the price, as the average standard APR has risen to its highest level for 13 years.”

Personal Loans

For those looking to borrow over £7,500 on a personal loan, there have been some significant savings in the cost of borrowing over the past five years. In March 2009, the cheapest loan rate was 7.90 per cent, you can now get 4.5 per cent and that has fallen 0.60 percentage points over the last year alone. Rates on personal loans below £7,500 remain higher, but they have also fallen over the last five years. The current average rate on the top 10 personal loan at £5,000 has fallen to 5.94 per cent compared to 9.23 per cent in March 2009.

Clare Francis, said: “Personal loan rates have fallen dramatically over the past five years, so this is a good time to cash in on the offers if you need to borrow money, maybe to buy a new car or do some home improvements. However, it is worth being aware that the best deals are generally only available to consumers with excellent credit histories. Before applying for a loan, or for any credit product, it’s a good idea to check your credit history so you have a clearer idea of the products you are more likely to be accepted for based on your credit score.

“Unfortunately, whilst headline rates on personal loans have fallen over the past five years, this has also been the period during which demand for expensive payday loans has soared. With millions of households struggling to make ends meet each month, many have felt turning to payday loans has been their only option because they won’t qualify for the leading loans or credit cards.”