In April, nearly half (47%) of people choosing to re-mortgage opted for a five-year fixed deal. That’s the highest proportion in six months. Five-year+ fixes have now overtaken the two-year fix in popularity – historically the most in-demand product.
People are choosing to lock in for longer now because the strong demand for five-year+ fixes has meant lenders are keeping rates competitive, compared to two-year fixes.
The two-year fixed rate, in contrast, has risen 0.04% month-on-month to 2.43% in April. That’s an increase from 2.20% in October. It represents the highest two-year rate since September 2016, as lenders have altered rates to reflect the base rate rise.
This means the difference in rates between two-year fixes and five-year fixes is very narrow.
It’s why, for many home owners, the five-year+ fix now makes so much financial and security sense.
Home Buyers are taking a Long View
There are several reasons why a long-term remortgage fix has such appeal right now.
- Property owners’ realistic fear of further base rate rises: the Bank of England has already increased this to 0.5% and it’s predicted to rise again at least twice in the next two years.
- Insecurity about the implications of Brexit: this looks to continue as a long drawn-out affair. The BBC reported recently: “While the outcomes of Brexit remain unclear, our analysis shows that any scenario will increase costs for UK households,” said Duncan Brewer of Oliver Wyman, a consultancy firm that has done major pieces of work on the economic impact of Brexit for the financial services sector and retailers.
- The Bank of England Term Funding Scheme came to a close in February: this was a package of measures to protect the economy after Brexit and it has now ended a cheap source of funding for the country’s lenders. Why does this matter to home buyers? It’s likely to mean higher mortgage rates for households.
- The impact of a long-term fix on future re-mortgaging costs: many lenders are reducing rates for fixes to be competitive but adding a hefty application fee. So fixing for five years or more could save you thousands because you’ll avoid paying re-mortgage fees every two years, not to mention broker fees, valuation fees and legal work, and the extra effort you have to put in to re-mortgage.
With these scenarios, locking in to a competitive five-year fixed deal to keep control of your budget while the UK grapples with an uncertain economic future makes a lot of sense.
Is a Long-Term Fixed Re-mortgage Right for You?
Everyone’s circumstance is different. Certainly, if you’re planning on moving in the short or medium-term, then a five-year or ten-year fix won’t be for you.
The best re-mortgage for you will depend on factors such as how much you’re borrowing, your age, your savings, your employment future, your future plans and your credit rating.
The lower your loan-to-value (LTV), the better rate you’ll get so if you’ve equity in your property, you’ll get a better deal.
You can manage your re-mortgage application yourself by delving through the best-buy tables.
But many experts agree that an independent mortgage adviser – also known as a broker – will help you find the re-mortgage most suited to your finances more quickly and cheaply.
Some will charge you up front. Others will receive commission from the lender. Your adviser should tell you the full cost straightaway. Some can also source re-mortgages for you that you can’t apply for directly.
Would you like to discuss your circumstances informally? You can contact us at MAS any time you have issues or need advice on re-mortgaging here.