Mortgages have had a wonderful grace period of low rates, but it could finally be time to choose a fixed-rate deal.
After years of rock-bottom interest rates on mortgages, a number of factors mean homeowners should consider locking into a fixed-rate mortgage.
1. Rates are starting to rise
Fixed-rate deals have already started to creep up, according to data from the Bank of England.
Four months ago, it was possible to get a two-year fixed-rate at 1.31% but by the end of February the same mortgage had an average rate of 1.35%.
Longer-term deals are also on the rise. Figures from financial date site Moneyfacts show that five-year fixed-rates have gone up for the first time since September 2015.
2. The gap between SVR and fixes is wider than ever
When your fixed-rate deal ends your lender will automatically shift you onto their standard variable rate (SVR). This is where mortgage lenders make their big profits as SVRs are much higher than the best fixed-rate deals.
That is particularly true at the moment. The difference between SVRs and two-year fixed-rates is at its highest level for over eight years.
If you are on a two-year fixed-rate that is about to end you are likely to see your interest rate rise by an average 1.5%, according to Moneyfacts. On a £200,000, 25-year mortgage that means a £163.81 increase in monthly repayments.
“Despite the Base Rate standing at a record low, borrowers will be shocked to find their monthly repayments could increase by £1,965,72 a year on average if they settle for the SVR,” says Charlotte Nelson at Moneyfacts.
“This could provide a strong motivation to remortgage, with the remortgage market having seen substantial activity in recent months as customers have continued to take advantage of the record low rates.”
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3. Good long-term deals
Rates on longer-term fixes have dropped substantially in recent years making them increasingly attractive (although as we pointed out earlier this is already starting to change).
Fixing for five or 10 years gives you certainty over what your housing costs will be for a long period of time and also means you avoid the costs involved in regularly remortgaging.
4. Brexit
Another reason to consider a long-term fixed-rate mortgage is you can avoid the uncertainty over what interest rates will do when Britain leaves the EU.
The Prime Minister looks set to trigger Article 50 later this month, which puts the UK on a path to exiting the EU in two years’ time.
Opt for a five-year fixed-rate mortgage and you will escape a potentially turbulent time for interest rates. Opt for a two-year fix and you could be shopping for a new deal right when Brexit occurs.
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