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Most of us are betting on a rise, which is why there is a 'huge surge' in five-year deals. Rupert Jones reports
Growing numbers of people are looking to fix their monthly mortgage payments for five years or more, after concluding there is only one way for interest rates to go – and that's up.
Mortgage broker John Charcol this week revealed it has seen a huge surge. It adds that up until recently, around 70% of the fixed-rate deals were being taken out for two years, but it is the five-year deals that are now proving really popular. They accounted for more than half of all the fixes taken out via the firm in April.
With the Bank of England base rate now at a record low of 0.5%, it is hard to imagine the official cost of borrowing going any lower. So if you want the certainty of knowing what your home loan payments will be for quite a while, perhaps now is a good time to sign up for the longer term.
Many specialists reckon the desirability of fixing for longer is driven by the fact that interest rates have to go up at some point – though the timing and scale of the increase are, of course, still open to question. Some predict they will start rising again before the end of the year; others believe they will stay broadly where they are for the foreseeable future.
There will be many homeowners out there whose existing mortgages are coming to an end soon and who will be wondering what they should do. Many will be on fixed rates now and will want to take out another one.
Borrowers have traditionally preferred the flexibility offered by shorter fixes, in case they move home/change job/split up. And rates on two-year fixes are usually lower than those for five years-plus. Also, the big downside of longer-term fixed-rates is the fact you are often tied in by early redemption penalties for a long time.
But it is clear that growing numbers of people are keen on the peace of mind that they offer. (Incidentally, if your current deal is ending soon, check what rate your lender will put you on to, as for some people this may not be a bad bet. For example, Nationwide's base mortgage rate is only 2.5%).
High street bank Abbey this week launched what it claimed were "the best fixed rates in a decade," including several longer-term deals aimed at those looking to remortgage.
There is a three-year fix at 4.09%, a seven-year at 4.99% and – for those who are really looking for long-term security – a 15-year at 5.38%. They are available via Abbey branches or over the phone "for a limited time only" and all carry up to 75% loan to value £995 fee. Maximum loan is £250,000.
The Spanish-owned bank also issued research showing that the number of homeowners who believe the base rate has fallen as low as it will go has more than doubled over the past two months. "Now is definitely the time for borrowers to fix and guarantee certainty* of their monthly payment, especially if they are looking for a longer-term fix," it adds.
Seven-year rates are relatively rare, though a few lenders have started offering them on the grounds that some borrowers are interested in fixing for longer than five years, but do not want to go up to 10 years, says Ray Boulger at John Charcol. While five-year deals accounted for 56% of the fixes taken out through his firm in April, 10-year products made up only 4%.
Abbey's claims that its deals were the best for 10 years were refuted by Boulger, though he acknowledged that its rates are pretty competitive. He says that at 4.99%, Abbey's seven-year fix is good value. Skipton Building Society has a seven-year fix at 4.79%, though to get that you need a minimum 40% deposit. If you can cobble together a 25% deposit, the rate is 5.14%.
Abbey's 15-year fix, at 5.38%, is comfortably the best available over this period, though there aren't many on the market, says Boulger. The penalties locking you into deals like this can make them a turn-off. Abbey's 15-year loan has a 7% redemption penalty for the full 15 years.
This week also saw Alliance & Leicester launch a four-year fixed-rate loan with a rate of 4.39%. But the product fee for this mortgage is 1% of the loan amount, and you can only borrow up to 65% of the value of your home.
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