The rising popularity of long-term fixed rate mortgage deals has seen the popularity of two year fixed rate mortgages decline since 2013 when they made up 54% of the total. Yet there are reasons, even in the current economic climate, why short term fixed rate deals can offer a better option for first time buyers, according to independent mortgage brokers Green Mortgage Services. It is understandable that many people considering taking out a mortgage with Brexit on the horizon are going to be anxious about the immediate future. A mortgage is a big financial commitment for most people, so taking the time to consider all the options is essential and this includes deciding on whether or not to opt for a fixed rate deal and for how long.
According to Green Mortgage Services what some first time buyers don’t realise when they enter into a longer term five year plus fixed rate mortgage is the extra interest they will pay. The extra interest and higher costs can really add up over the longer term and, depending on individual circumstances, it may not make a lot of financial sense. The main reason to consider a five year fixed rate deal are largely down to financial security. A fixed rate deal will ensure payments don’t increase for five years which is better for those unable to cope with paying more each month following a future rate rise. This aside, there are plenty of downsides to being tied in to a long term deal. Five years may not sound like a long time but a lot can happen in that time and financial circumstances can change one way or the other. Green Mortgage Services are keen to point out that five year fixed rate deals may sound like an attractive option to anyone worrying about what will happen with jobs and the economy.
It may be the case that things don’t turn out as bad as some economists are predicting or that interest rates remain low for the foreseeable future. This could leave people stuck on a five year fixed rate deal and having to face hefty penalty charges if they wish to remortgage or move house and switch to another lender during the five year term. “The penalties can be up to 5% of the mortgage so these fees are not inconsiderable, says Michael Kallaras, Director of Green Mortgage Services. This is not to say that opting for a fixed rate deal isn’t a better option than a tracker or the standard variable rate offered by lenders. Borrowers will be at the mercy of a hike in interest rates if they don’t fix their mortgage interest rate.
Fixing offers more security than variable rate and tracker mortgages. A two year fix offers the best of both worlds insulating borrowers against immediate rate rises and paying less in interest than longer fixed rate deals. Interest on a two year fix is typically half a percent less than on a five year fix. The monthly payments will also be less as a result and there is the added benefit of being able to switch and remortgage with a different lender sooner, quite possibly on a better rate than the original introductory rate which can be high for first time buyers. It is possible that in two year’s time the Bank of England base rate, which tends to have a direct influence on mortgage interest rates, could rise and in turn push up mortgage rates. This is more likely to be the case if an economy is growing rapidly and inflation is increasing due to high wage growth.
There has been little evidence so far that any of this is on the horizon which would mean fixing for five years makes little sense if interest rates could either remain low or even fall again in the short to medium term.” Notes to the editor: Green Mortgage Services are whole of market mortgage brokers with offices all across the UK. They are specialists in finding the best mortgage deals on remortgages, first time mortgages, buy to let and commercial mortgages. Green Mortgages Services provide complete support during the application process to ensure customers have access to the best mortgage products available. The emphasis is on providing clients with an experience that is simple, straightforward and easy to understand. For more information, supporting pictures or logo artwork, please contact: Alex Owen Tel: 01244 401 213 Email: alex@mastersofbrands.co.uk Web: www.greenmortgages.co.uk
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