Due to the continuing problems in the economy, it looks possible that interest rates are going to remain low for longer than expected. Fortunately, the poor economic news has had a welcome side effect of significantly reducing long term fixed rate mortgages.
Not long ago, most long term fixed rate mortgages were averaging 6% to 6.25 per annum and have not really moved much in a downward direction, even though the base rate has tumbled to 0.5%. However the good news is that fixed rate mortgages are now at their lowest level since 1988 with five year fix rates averaging 4.99% per annum. Even better is coming from the Building Societies with the Coventry Building Society having launched a four year fixed rate mortgage at 2.99% per annum. As an alternative, the Furness Building Society are charging 3.75% per annum with no arrangement fee charged on a five year deal.
These deals are available for both mortgages and remortgages, and in the remortgage market, as a result of these changes many people will want to review their existing arrangements due to the slashing of fixed interest rates. For example, if you already have a five year fixed rate mortgages costing 5.99% per annum with two years remaining on the fix, with a 2% penalty to exit the loan early, it could be worth paying the penalty. The reason for this is that you may be able to remortgage, for example, with the Furness Building Society, at a rate 3.75% per annum for five years. As a result of this low rate, you could recover the penalty charge within a year, together with bringing four further years of security on a historically low fixed rate.
It could be that you have no penalty to exit your variable rate loan and have been enjoying low rates that may be costing between 2.5% and 3.5% per annum, and until now have dismissed long term fixed rates because they have been too high. This is no longer the case as long term fixed rates are now comparable with the best of the variable rate mortgages.
So it could be worthwhile seeking security whilst rates are low. But a word of warning is that long term fixed rates are not for everyone. This is because you are making a long term commitment and if you wish to leave the housing market in the near future, you may end up paying the penalty. So ensure that you go into fixed rate mortgages with your eyes open as there may be pitfalls with regard to flexibility, so it is important to consult an independent financial adviser.
If you are unsure of the options you have, it is worth contacting an Independent Financial Adviser who specialises in mortgages to provide you with impartial advice on what is right for you. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett CertPFS
22nd August 2011
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