With rates on many fixed-rate deals recently falling – and with uncertainty over when the base rate could rise – fixed-rate mortgages could become an increasingly attractive option for homeowners.
In July, Yorkshire Building Society cut the rate on its best five-year fixed-rate deal to a market-leading 3.49%, with an arrangement fee of £995. Borrowers who don’t want to pay this much up front can get a rate of 3.69% with a £95 arrangement fee.
According to Moneysupermarket, the best five-year fixed-rate deals before this offered rates of 3.79% (Chelsea Building Society) and 3.89% (Nationwide). Even those deals carried lower rates than many of the two-year deals available only a few months earlier.
The recent fall in the interest rates available may reflect intensifying competition between mortgage lenders, says an expert at Think Money.
“Many economists now believe we won’t see an increase in the base rate until late next year, which may have made some mortgage lenders more relaxed about offering lower interest rates. The fact that some of today’s five-year deals offer better rates than some of the two-year deals available a few months ago suggests that mortgage providers are serious about their lending.
“This could make five-year fixed-rate deals a very attractive option for many homeowners. Only a few months ago, such low rates over such a long period would have been unthinkable.
“However, it is worth remembering that tracker mortgage deals still tend to offer lower rates than fixed-rate deals at any given time – so some borrowers may prefer to go down that route instead.”
“Ultimately, the right mortgage deal depends on the borrower’s circumstances – and as such it’s often a good idea to seek advice before they make a decision.”
Lower rates mean lower monthly payments for homeowners. Furthermore, it could reduce costs for those considering borrowing more on their mortgage for other purposes, such as debt consolidation.
“Consolidating debts into a mortgage can greatly reduce the month-to-month cost of repaying those debts, because they are essentially spread over the entire duration of the mortgage. And when mortgage rates are low, this could prove to be a very cost-effective way of dealing with debt.
“However, we advise anyone considering doing this to think carefully, as it will increase the size of the borrower’s mortgage. Furthermore, taking longer to repay the debt may mean the total cost is higher in the long run, and if for any reason they can’t keep up with their payments, they may risk losing their home. But as long as the borrower is sure they can keep up, it could make very good financial sense.”