Governments come and go; manifestos promise much but sometimes deliver little.
Fixed-rate mortgages give the certainty that your monthly repayment will remain the same during the fixed rate period and therefore homeowners who have a mortgage secured against their property are saved from periods of sudden interest rate rises.
So, the big question is, why do some people only fix their mortgage interest rate for a short term?
There are some who would argue that consumers do not want long term schemes, because they like to review their mortgage interest rates as they do their insurance and energy bills etc.
Some people think that longer term fixed rates come with higher interest rates when compared a two-year fixed rate scheme.
Some sceptics may believe that interest rates are government lead opposed to being driven by the economic conditions prevailing at any given time, therefore suggesting that rates to run parallel with election periods and therefore a longer-term fixed rate may not benefit them.
It is Important to understand that many lenders offer fixed rate products for varying periods. Typically dependent upon the lender, you can choose a fixed rate scheme between 1 to 10 years in length, in fact a limited number of lenders will now consider a fix for term. Hence you need to ensure that your adviser has reviewed and considered all options and what would be the best fit for your personal situation.
With all these considerations, you need to question is long-term planning better? And is your financial advisor presenting these options to you for consideration?
Mortgages for many people are currently a big worry financially and this is certainly resulting in a lot of clients suffering from stress and anxiety, questioning how they will maintain their mortgage repayments.
In the UK we are all looking for the lowest rate of interest when it comes to our lending. Some experts may say this is derived though short-term fixed rates of two years or so. But maybe it is time for a change? Right now, 2-year fixed rate deals are more expensive than many 5-year fixed rate deals. Over the last three months we have noted that the gap between a 2-year scheme and a 5-year scheme was around 0.5%. So, while you might be able to access a cheaper mortgage rate after your 2-year deal is up, right now you will pay more per month by opting for this length of fixed rate.
Many people choose short term two-year fixed rate mortgages because they feel that this will provide them with a greater degree of flexibility than if they were lock into a five-year fixed rate scheme. For example, if interest rates fall over the next couple of years, you will be free to remortgage to a lower rate as soon as your deal finishes.
We find that many clients tell us that they do not like volatility; quite the opposite they want security. They sometimes find it difficult to budget or look forward to the simple joys of life such as a holiday or possibly the birth of a child especially when everything can change at the drop of a hat.
Currently in the UK, lots of couples and families who may even consider themselves to be financially secure are now becoming much more concerned that they will have to re-consider what they can afford.
If you are concerned about the long-term financial outlook and let us be honest nobody has that Crystal Ball. You may be better looking to a longer-term fixed rate scheme, as I have highlighted above you may obtain a slightly lower rate of interest when compared to the shorter-term fixed rate scheme. It must be said that where you have a larger mortgage a quarter present saving off the interest rate will have a much bigger impact for you when compared to the clients who may now only have a very small mortgage remining you (e.g., on a £250,000 mortgage a 0.25% reduction on the interest rate will reduce your mortgage interest charge by £625 per year = £52.08 per month)
Clients often ask us do we believe that interest rates will reduce next year and if so in spite of the benefits offered by a longer-term fixed rate scheme should they consider a shorter-term fixed rate.
A recent article published by the Times Money Mentor and written by Josh Kirby (https://www.thetimes.co.uk/money-mentor/mortgage-property/when-will-interest-rates-go-down-uk/) reported that most analysts think that interest rates have peaked and will soon start to fall.
While the Bank of England governor has said he cannot see rates falling soon, others feel he might be overly optimistic about the economy, and pessimistic about inflation.
Josh Kirby added in his article (Please see the link above) that Research firm Capital Economics expects the Bank of England to lower the base interest rate to 3% by the end of 2025. Projections from Berenberg Bank anticipate that rates will fall to 4% by the end of next year.
Hopefully, this article will give you sufficient information to decide whether a shorter-term scheme may be more suited to you or where it may better for you to take advantage of the longer-term fixed rate schemes that are available. Always remember that some lenders can also offer fixed rate deals with different terms as well as the schemes noted above.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please note that some mortgages such as commercial BTLs are not regulated by the FCA.