FIXED mortgage rates are up on last year but currently at a six-month low, and it can be a dilemma for Brits taking out home loans.
It comes after millions of homeowners on variable-rate mortgages faced higher repayments after the Bank of England hiked interest rates again.
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The Bank increased the base rate of interest from 4% to 4.25% at the end of March in a bid to keep a lid on soaring inflation.
The Bank has hiked rates for eleven consecutive months since December 2021 when it was at a historic low of 0.1%.
The majority of fixed-rate mortgages in the UK (57%) which are coming up for renewal in 2023 were fixed at interest rates below 2%, according to the Office for National Statistics (ONS).
Borrowers on fixed-rate mortgages have been cushioned from the immediate impact of interest rate rises so far – because rates don’t change within a fixed deal’s term.
But when these homeowners come to remortgage, they will face a shock with higher repayments as they’ll be forced to take out fixed deals with much higher rates.
However, fixed mortgage rates are currently at a six-month low, according to MoneyFacts.
Both the average two, five and ten-year fixed rates fell month-on-month for the fourth month running.
We spoke to experts to help understand whether you should fix for five or ten years if you’re considering long-term stability.
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Which long-term fixed mortgage is best right now?
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that how long you fix for should depend entirely on your financial circumstances and expectations.
Right now borrowers can get lower rates with a five-year fixed deal.
Mark said: “With five-year fixes available from below 4% (Virgin Money from 3.79%) and ten-year fixes starting from just over 4% (Platform from 4.05%), you will pay around 25 basis points more for additional security for that extra time period.
But David Hollingworth, associate director at L&C Mortgages said that there’s still merit to taking out a long-term ten-year fix.
He said: “A longer-term rate could be a useful solution for someone that wants to see out their current mortgage without any worries about the ups and downs of interest rates.
“Alternatively, it could be an option for a young family stretching to buy their forever home and preferring a longer period of budgeting stability.”
Some lenders also offer further flexibility and borrowers can get access to three and seven-year rates that could offer a balance to suit the individual situation, according to David.
However, both experts agreed that these long-term fixed deals aren’t for everyone.
Why should I still consider short-term fixed mortgage deals?
One of the key reasons to avoid a longer-term fixed deal is if you plan on moving within the fixed-rate period.
Mark said: “If you need to move within the fixed-rate period, you may have to pay hefty early repayment charges to get out of the mortgage early.
“Even if a longer fix is portable, there is no guarantee that you can take it with you should you move and it may only be allowed should you meet the lender’s policy at that time, so you can’t always rely on this.”
David said it’s also worth remembering that if interest rates are forecast to drop before your long-term deal is up you’ll be locked into paying a higher rate.
“Unusually, medium to longer-term fixed rates are offering lower rates than those available on short-term two-year deals.
“However, that is because the markets feel that interest rates could ease back over time, as inflation falls.
“As a result, some borrowers are considering shorter-term deals in the hope that they can review in a couple of years’ time and that rates will be lower,” said David.
Tips for getting the best mortgage deal
Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE rise rises.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
