Interest rates remained low for a long time after the financial crash in 2008, however, they have recently begun to go up (currently the base rate is at 4% – February 2023) and may well continue to climb as the powers that be try to control the country’s spiralling inflation levels. So, if you’re on a variable rate or tracker mortgage, it’s worth considering whether you would now be better off on a long-term fixed rate mortgage. This way, no matter how high the interest rates rise, it’ll ensure your monthly repayments stay the same for a set period of time, which may provide more stability during the current cost of living crisis.
At the moment, there is not much difference between the most competitive five-year fixed rates and two-year fixed rates. This means many people are choosing to fix for five years; however, no one has a crystal ball to predict what will happen over the next few years. It’s unlikely we will see the base rate fall as low as it was previously at 0.1%, and to curb inflation, we’ve seen consecutive increases by the Bank of England over the last year, which has seen the base rate rise by 3.9% to 4%. Although this has caused interest rates to rise on mortgage lending, fixed rate mortgages are generally sitting at around 4% now, after the worrying spike up to around 6.5% caused by September 2022’s disastrous mini-budget.
Choosing a fixed rate mortgage provides peace of mind that your payments will not increase for a longer period and enables you to benefit more substantially from the low rates which are still currently available. We must highlight however, that you are likely to be tied into that mortgage for the period of the deal, with early repayment charges payable, should you choose to re-mortgage or pay off your mortgage in full.
We will aim to be as transparent as possible with you if you choose us to help you find the best mortgage deal for you. However, you should bear in mind that although many deals are advertised as portable, allowing you to move house and stay on the same mortgage, it’s not guaranteed that you will actually be allowed to do this when push comes to shove. The property you want to move on to might not fit with your lender, or you may need to borrow more to buy a more expensive property. You may need to be able to show that you meet the lender’s affordability criteria and the lender may not always be prepared to lend more to you.
Therefore, we usually advise against fixed rate mortgages spanning longer than two to five years, as you never know what your circumstances will be beyond these amounts of time. You may receive inheritance changing your financial situation, you may go through an unexpected separation or divorce, welcome children that require upsizing your property or you may need to relocate for a new job opportunity.
These scenarios could provide a tricky problem to have to solve, as you cannot easily go to another lender at that point. As a result, it’s best not to fix for five years or longer if you think there is a good chance you may need or want to either move to a new house, pay off your existing mortgage or re-mortgage during that period.
If your mortgage deal is due to expire within the next six months, it’s time to give us a call on 01527 222 694 and ask to speak to one of our expert advisors. With rates being higher and the uncertainty of the market, we can help secure a deal now which might not be available if you wait until last minute.