Q. With interest rates coming down, what are my mortgage options?
A. Interest rates and mortgages have been in the news a lot recently. The Bank of England has reduced interest rates to a record low of 0.25%, and even hinted at the possibility of a further cut. So, is this a good time to fix for longer than the usual two years?
Historically, two year fixed rates were the norm, but five years is now more common and some lenders are launching seven and even 10year fixed deals, with attractive rates.
If you are in a stable situation relationship, job, house then a longer term fixed rate does make sense. But you wouldn’t want to break a 10year fixed rate and incur an early repayment charge, as this would be costly (although you can transfer the mortgage to a new house if you sell).
Over the past six months, 91% of our clients have opted for a fixed rate mortgage, most on two year terms. It’s worth bearing in mind that when you come to review your two year fixed rate, may be around the time that the UK is actually leaving the EU.
Nobody knows what impact that will have on the economy and interest rates, and that’s why some people may prefer to choose a longer term fixed rate, and enjoy the peace of mind that comes with it.
If you’re buying a home with a smaller deposit, it may be worth considering a short term fixed rate. As your equity grows (known as the loan to value or LTV) the lender’s risk profile reduces, and they will generally offer you cheaper rates. So, even if interest rates increase, you can offset this by securing a lower rate, reflecting that reduced risk.
If you feel five years is too short, but 10 years is too long, there is now another option. So far, 32 seven year fixed rate products have been launched (compared to only a handful five years ago) and these are a good middle ground.
The other solution, of course, is a tracker or variable mortgage, which may follow the Bank of England base rate. But, although interest rates could fall again, they could also increase as we approach the EU departure date. Be mindful that rates could go up or down. Much depends on your circumstances and attitude to risk. The best course of action is to seek independent advice.
BB Mortgages helps scores of self-employed people find a mortgage each year. For advice, call us on Newark 01636 674455