Fixed mortgage rates are getting increasingly competitive with rates at all time lows, but deciding on the right time to fix is difficult.
Mortgage rates have fallen to historic lows, but how for much longer? The question is a hot topic for many homeowners and hopeful first time buyers concerned about their repayments.
How much longer will low mortgage rates last?
The base rate set by the Bank of England determines how expensive it is for banks to borrow money and is a major influence of the rates they, in turn, lend at.
It has been kept at a historic low of 0.5% since 2009 and it was thought that it couldn’t go any lower. It was thought the Bank of England was planning to raise the rate in 2016.
However, after the results of the referendum on British membership of the EU (Brexit) a rate rise is looking increasingly unlikely, there have even
Should I fix my mortgage rate this year?
Fixed rate mortgages give you a set rate on your mortgages for a number of years, helping you avoid worrying about whether interest rates (and your monthly payments) will go up.
Fixing a rate is something of a gamble given that you are effectively betting on rates going up. If they do, you could save a great deal of money in the long term. But, if rates remain low, or become cheaper, you risk missing out on the cheapest deal.
Fixing a rate can also be a savvy move for first time buyers as they will know that if they can meet their current repayments they are secure in their new home for a number of years.
Though, it’s most sensible to approach the question of when to fix from a personalised perspective based on your own circumstances and forecasts of income and outgoings, or you could find yourself obsessing about the markets and factors beyond your control.
The lowest rates and longest fixes
The end of 2014 saw the cost of mortgages fall to all-time lows, with initial rates under 1% available from HSBC, but it also saw the return of longer fixes. These rates have stuck around and may be set to stay at lows in the foreseeable future too.
Note the disappearance of 10-year fixed-rate mortgages in 2009, only just reappearing in October 2014.
After the 2008 crash fixed-rate mortgages of 5-10 years all but disappeared, but they are making a comeback, with many lenders bringing out mortgages with fixed rate for 10 years at some of the lowest rates ever offered.
Getting a mortgage this year?
Without a crystal ball it’s a tough call whether to choose a mortgage with a fixed rate.
While fixed rate mortgages have been becoming cheaper recently, especially after the Brexit vote, it’s impossible to guess how long they will remain so low, or if they could become even lower in the future.
It may be well worth your time comparing fixed rate mortgages against variable rates to decide if fixing your rate now might save you money in the future, or even protect you from your repayments becoming unmanageable.
Find a mortgage with a rate set for a number of years, giving you peace of mind that the price of your mortgage won’t change.
Find a mortgage that tracks the base rate of the Bank of England. This means (in theory) the price of your mortgage will roughly move with how well the national economy is performing. Usually this means when times are good you’ll pay more and less when times are tight.
Find a mortgage with a rate determined by your lenders ‘standard variable rate’ – traditionally the cheapest initial rate, but can it go up at your lender’s discretion.