The economy is set to face a lot of upheaval over the next two years.
Britain is preparing for another general election and an exit from the European Union. Meanwhile, across Europe a raft of elections could have a knock-on effect on our economy - and who knows what Trump’s next tweet could do to global diplomacy and markets.
In this environment many of us are choosing to fix our mortgages so we can lock in a low rate and not have to worry about how domestic and international news could affect our monthly mortgage repayments. But, are you fixing for long enough?
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
SUBSCRIBE & SAVE
Sign up for The Week's Free Newsletters
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Latest Videos FromThe Week
Most people opt for a two-year fix when they buy a house or remortgage as these have the lowest headline rate and the base rate is seemingly stuck at record lows.
But opt for that now and you’ll be shopping for a new deal just as the UK leaves the EU in 2019 – that could be a very volatile time for rates, especially the swap rates between banks that are the key driver of pricing.
So, with all this uncertainty long-term fixed rate mortgages are growing in popularity and it isn’t hard to see why.
Inflation is currently 2.3 per cent, but interest rates are at record lows. Lock in a long-term interest rate of less than two per cent and you are unlikely to regret it – the chances of interest rates falling are slim, and they really can’t fall far.
The other benefit of a long-term fix is you avoid the cost of remortgaging. Many banks are now fighting to get to the top of the best buy tables with a low-rate but are clawing back some of that money by whacking a large application fee onto the costs – usually around £1,000.
So, fixing for five years could save you thousands as you won’t be paying remortgage fees every two years.
The past ten days have been an exceptionally good time to lock in a five-year fixed rate. Challenger bank Atom Bank launched an assault on the mortgage market with a range of products designed to seize market share. This included a five-year fix with a rate of just 1.29 per cent - less than most two year fixes.
“While the product won’t be suitable for everyone because you’re tied for the full five years, Atom have deliberately priced these products the same as their two-year fixes, meaning borrowers seeking some stability are no longer faced with the dilemma of length versus cost.”
Atom Bank’s plan worked. By offering the stability of a five-year fix at the price of a two-year deal it drew in new customers in their droves.
The bank that last month had to turn away customers wanting its savings accounts has now had topull its five-year mortgage deal after just nine days with estimates it lent several hundred million pounds during that time.
David Hollingworth from London & Country mortgage brokers told The Telegraph that his firm had process more than 400 applications for Atom Bank’s five-year mortgage.
“Atom Bank customers were getting an incredible deal,” says Amelia Murray in The Telegraph.
But Atom Bank’s exit from the five-year market doesn’t mean you shouldn’t still be considering a long-term fix. The next best deal is from Barclays which is offering a five-year fix at 1.75 per cent with a £999 fee. To get that you need to have a 40 per cent deposit.
If you are really sold on the idea of a long-term fix – and have no plans to move house – you may want to consider an even longer fix. The Coventry offers a 10-year fix at 2.49 per cent if you have at least a 35 per cent deposit.
