The Bank of England base rate has been held again in June at 0.5%. The rate has now remained unchanged for almost 4 and a half years, with the last increase taking place 6 years ago when the rate increased from 5.5% to 5.75%. So it is perhaps understandable that we may have become blasé about mortgage rates increasing. Yet there are signs that the economy is recovering with the FTSE 100 having increased by almost 10% so far this year.
This event has in turn made investors, in my opinion, demand more when dealing with companies who are raising capital. For example Helical Bar (a leading property and investment company listed on the stock exchange) are borrowing money through a bond. This bond that the public can access is paying 6% per year fixed for 7 years, but is not protected by the Financial Services Compensation Scheme. However, outside of the artificial rates that borrowers are enjoying and savers are suffering due to government intervention, perhaps this bond could be an indicator of future trends.
If it is the case that long term rates are maybe going to return to the sort of levels that companies borrow at, and base rates of 6 years ago it is perhaps worth while reviewing our mortgage with an emphasis on the long term. Medium term fixed rates over 5 years at the moment can be accessed at an average of around 3% per annum.
More recently lenders have started to return to 10-year deals with historical record low rates. For example the Woolwich are lending at 3.89% for 10 years with 1,499 booking fee, as long as your loan is below 70% of the value of your house. It is true that over the first 5 years if you chose the 5 year fix you would be ahead verses the 10 year deal. But if rates do move up even 6% on average from year 6 to 10, the 10 year fix would claw back what was lost in the first 5 years.
Long term fixed rates are not for everyone as borrowers need to be aware that if their circumstances change and they wish to exit their loan the penalty can be steep. On the other hand if you are settled in your property, feel secure in employment and want certainty of payment, then long term fixing could be for you. As always everyone circumstances are different so before committing to any mortgage it is worth while consulting with an Independent Financial Adviser that specialise in mortgages. The adviser will guide you through the mortgage maze and help find the most suitable product for you.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
10th June 2013
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