As Christmas approaches, competition appears to be hotting up among providers of fixed-rate mortgages.
From December 1st, HSBC has been offering customers with a 40% deposit a five-year fixed rate mortgage at 2.48% interest for a £999 fee. This is the first five-year fix to be offered for less than 2.5% since last summer. However, that’s not to say it will remain the lowest interest five-year fix on the market.
It’s thought that fixed-rate mortgages are becoming more competitive because the continued low rate of inflation and wages growth in the UK economy makes it less likely that the Bank of England will need to increase the base rate anytime soon.
While the Bank has suggested it will raise rates from next year, some commentators have suggested that the first increase may not come until the summer. As a result, lenders may have decided they can afford to be more competitive with their rates.
Many fixed rate mortgages start with a term of two years, particularly for first-time buyers. Five years allows people to fix for longer, and recent weeks have seen an influx of long-term fixes coming to the market as well.
Last month, Nationwide unveiled its new 10-year fixed rate mortgage for homeowners with 15 per cent equity or buyers with a 15 per cent deposit. The interest rate was fixed at 3.49% for a loan to value (LTV) of 70%, and 4.54% for an LTV of 85% for 10 years.
The building society isn’t the only one to offer a long-term fixed rate mortgage like this either; Woolwich (which offers mortgages for Barclays) and West Bromwich Building Society also do so.
Counting the benefits
There are a number of reasons why some borrowers prefer fixed rate mortgages, for example; some homeowners simply prefer the feeling of security that comes with a fixed mortgage.
If you choose a tracker mortgage or your fixed mortgage term ends and reverts to your lender’s Standard Variable Rate product, the interest you pay will vary. This is because it follows the Bank of England’s Base Rate; if this goes up so could the interest you pay, and if it falls your interest may too. In contrast, a lender sets the rate of interest for a fixed rate mortgage and it remains there until the term comes to an end; regardless of any movements in the Base Rate.
Because the Bank’s rate has been so low for so long (0.5% since 2009), mortgages with interest rates that follow this have been pretty competitive. However, at any time the amount of interest customers are charged could go up (or down). This doesn’t happen with a fixed rate mortgage.
Some homeowners with a fixed-rate mortgage simply prefer knowing exactly how much they will pay each month. It can make budgeting for outgoings easier as the mortgage stays the same. And of course, if interest rates do go up, people on a fixed rate mortgage might save cash compared to those on a tracker mortgage.
With the Base Rate expected to rise at some point next year, now could be a good time to fix – but even if it doesn’t, you may want to consider remortgaging to a mid or long-term fixed rate mortgage to make your budgeting more straightforward and avoid any surprises for the next few years. Be certain to shop around or speak with a broker rather than applying for the first product you see. A mortgage broker like Ocean has access to a panel of lenders and will help find you a competitive deal that suits your circumstances and is from a lender who is likely to accept you.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.