Fixed rate remortgages are now more popular than ever with those homeowners with an astute eye on their finances. And for good reason…
Despite the Bank of England 0.25% rate increase in November 2017, remortgage approvals are at their highest levels since 2008.
That’s not surprising since rates are still historically low and a good deal can still be had.
So if you’re a borrower thinking you’ve missed out on all the record low deals, there’s good news. You can still make considerable savings and protect against further rises.
Likelihood of More Rate Rises Ahead
That’s important because many financial experts believe we’re likely to see at least a further 0.5% interest rise across 2018 from the Bank of England. All this depends on some factors, including the rate of inflation. But many some economists are predicting a further rise in Spring 2018 and another in Autumn 2018.
So caution is driving the enthusiasm for fixed rate remortgages now. With interest rates gradually sliding upwards after a long period of historic lows, many homeowners are looking to buckle down the cost of their mortgage for longer terms.
Plumping for a fixed-rate mortgage gives a lot of security. It means you know exactly how much you are paying out each month. And that you’ll be cushioned from any changes to the interest rate made by the Bank of England.
You have to be aware of the drawbacks though. You would need to pay out in early repayment charges if you decide to exit your deal early.
Since the Bank of England hiked interest rates, the average two-year tracker rate has gone up from 1.77% in November to 2.02% in December, according to research by Moneyfacts.
Meanwhile, standard variable rate mortgages have changed little, increasing on average from 4.6% to 4.74%.
The average two-year fixed rate mortgage has also seen little change. It increased from 2.21% in October to 2.35% in December.
The competition in the market means lenders are continuing to come forward with good deals. These fixed rate remortgage deals are almost all considerably below the average standard variable rate.
That means that with fixed rates so competitive right now, a variable deal holds little advantage.
The drive for certainty in uncertain times has seen the popularity of longer-term fixed rate deals soar. The demand for five-year fixed rate remortgage deals was responsible for a record 50% of all October’s remortgage transactions.
To put that in context, it’s more than twice the 19% at the same time the previous year.
That had a knock on to the appeal of variable rate deals which has plummeted with homeowners.
In October, from last year’s 19% market share, demand for variable products fell to just 5%.
How Long to Fix For?
The demand for security is encouraging more people to fix for longer. While most people choose a two-year fix, these have the disadvantage of meaning you have to be ready to switch again in 24 months.
It’s why five-year fixed-rate mortgages are becoming more popular. And why lenders are offering now more competitive rates for this product type.
A longer fix is now more attractive to remortgagors. This is due to the mix of greater market competition and homeowners’ greater discomfort with the current economic uncertainty in the UK. Brexit is part of this picture as well as the expectation of the Bank of England base rate creeping up again.
Two-year deals remain the most common, but require buyers to be proactive in switching their mortgage before the end of their fixed term.
In the last year or so, lenders have begun to compete more in the five-year market. This comes as buyers and remortgagors seek to protect their rates for longer amid uncertainty around the wider economy.
If you’d like advice on finding the most cost-effective product for remortgaging for your circumstances, you can get in touch with us here.