MORE than 95 per cent of borrowers have opted for fixed rate mortgages this year, according to Nationwide – around half of which have opted to fix for five years.
But whether you are remortgaging your home loan or a first time buyer, is a fixed rate mortgage right for you? And how long should you fix for? We take a look.
Jameel Lalani, head of mortgages at MoneySuperMarket, the price comparison site, explains that the benefit of a fix is that your rate is locked in.
He said: “For people getting on the ladder for the first time, or doing a remortgage, it’s always a decision about whether you want to do a fixed deal – which means you have a fixed monthly cost for an initial period of two, three or five years – or go with a variable rate deal, where the monthly costs may change.
“At the moment the fixed rate deals are often cheaper than variable rates, and it means you know exactly how much you’re paying each month over the period, which can help people with their budgeting.
“For people wanting more certainty over their bills a longer fixed deal will give this security.”
But while a fix gives you certainty, there can be a benefit to variable rate mortgages too, especially if interest rates drop.
That said, in the current economic climate it’s hard to take a view on whether that what will happen. Read the latest prediction here.
For those looking to fix, the market is still competitive with plenty of good, cheap deals out there according to MoneySuperMarket.
Many of the big lenders are offering first-time buyers rates of 1.5 per cent to 1.6 per cent fixed for two years, with Barclays currently the cheapest at 1.51 per cent based on borrowing requirements of £150,000 over 25 years and a 15 per cent deposit.
You can fix for longer, but the rates get higher -for example 1.84 per cent with HSBC for a three-year fix.
What about house prices?
LOW borrowing costs, plus high employment, are offsetting what would otherwise be a bigger slowdown in the housing market.
According to Nationwide, annual house price growth barely shifted in October.
On a year-on-year basis, the growth was just 0.4 per cent due to economic wobbles.
That meant it has increased at less than 1 per cent for the 11th month in a row.
On a monthly basis prices ticked up a mere 0.2 per cent.
The closely-followed index found that the average price of a home is now £215,368.
Robert Gardner, Nationwide’s chief economist, said: “Average prices rose by around £800 over the last 12 months, a significant slowing compared with recent years – for example, in the same period to October 2016, prices increased by £9,100.
“Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensifying of Brexit uncertainty.”
Analysts will be watching closely to see what impact the latest Brexit extension has, but most agree there will not be any major spikes until the political uncertainty is removed.
Darren Cook of comparison site Moneyfacts points out that there are hurdles to go through before a mortgage deal is yours, notably affordability tests.
They are especially relevant for those potential borrowers who are only able to raise a small deposit in the face of high property prices in many parts of the UK.
He said: “Five-year fixed mortgage rates are a little higher than two-year fixed, so someone who is pushing their budget a little may pass the affordability test for a two year but not a five-year deal.”
There are other factors to bear in mind, though.
Borrowers will need to remortgage when their deal matures though to avoid pricey standard variable rates (SVRs), and this can mean more costs for those remortgaging every two years.
A five-year deal, even though rates may be higher, is likely to carry less application, valuation and legal fees over the medium term.
“So it is imperative that when a borrower considers both initial rate terms, they may need to do the sums, workout the potential charges and get an indication as to which deal may suit their needs better,” Mr Cook said.
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SNAIL MAIL: Royal Mail has written to the CWU to say that if the trade union provides a binding commitment to remove the threat of strike action over the Christmas period, Royal Mail will enter into discussions on working conditions without any preconditions.