This last year has seen great competition in the mortgage market with sectors of the market becoming embroiled in the fight for borrowers who fit their often strict criteria. We are now at record low rates due to the competition with average two year fixed rates now 2.56% compared to 3.21% a year ago, and five year fixed rates averaging 3.29% compared to 3.86% a year ago. Although many rates available are a little lower than the ones quoted, particularly for low loan to value products it does give a good idea of how the market has been heading.
Low rates have now been with us for a very long time with many predictions being made for rates to rise in the last couple of years. But with the Americans having increased their base rate recently for the first time in nearly a decade, I believe the chances of a rate rise in the UK have increased for 2016. So for those with variable rates it could be worth re-examining their options and checking what rate they are paying. Then, before proceeding further finding out if any penalties are due if they decide to consider moving to a long term fixed rate.
It is possible that many people will get a surprise when they check out their variable rate, if they are not in a penalty, as they may have strayed into variable rates of 4% plus. Even if someone has recently remortgaged at say 60% loan to value they would be pressed to get a 2 year discount rate at less than 1.75% without paying big fees. If they have taken this route they will find that during the two years they will run the risk of rates rising and at the end of the deal will need to look for yet another deal that will probably cost money and is increasingly likely to be a higher rate.
I believe that for many insuring against long term rate rises in 2016 could be a good idea, as you can get 5 year fixed rates for as low as 2.50% with low fees. This is only 0.75% more than what I believe is the higher risk two year discounted deal. Taking the idea of a long term fixed rates a step further you can also get a 10 year fixed rate for as low as 3.19% and by paying a little more a rate of 3.34% is available with a tie in for five years only.
I think all these fixed rates represent excellent value for many borrowers even if rates do not rise for some time. However if they do borrowers who did not take advantage of these record low deals could be frustrated that they didn’t act in 2016, particularly if they are stretched even before rate rises. So it is worth making a new years resolution to strike while the iron is hot and securing your mortgage future for the long term.
Kieron Bassett DipPFS Cert SMP
4th January 2016
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