With a general election looming and Brexit on the horizon, the next couple of years could be a roller-coaster for the economy. In uncertain times, many homeowners consider taking out a fixed-rate mortgage so they can be sure of their monthly outgoings for the next couple of years.
But if you opt for the most popular fix period – two years – you could be shopping for a new mortgage just as the UK completes its transition out of the European Union. That may not be a good time to remortgage. So could it be worth considering deals that fix your payments for even longer?
British homeowners normally avoid long-term fixed-rate mortgages, unlike buyers in some other countries where these products are common. Yet a growing number of people are choosing to fix their mortgage rate for five or even ten years. That’s partly to give themselves greater certainty over their outgoings – but also because this looks like an exceptionally good time to bag a long-term fixed-rate mortgage that could save you thousands of pounds.
Interest rates are ridiculously low at the moment, and with the base rate at 0.25%, they can’t go much lower. As a result of this, mortgage rates are also at record lows. Take out a five- or ten- year fix and you could still be paying minimal interest long after mortgage rates have risen again.
Last week, Atom Bank, an app-only challenger bank, pulled its market-leading five-year fixed-rate mortgage after just nine days. The 1.29% interest rate was the same as that being offered by many mainstream lenders on their two-year fixes, and so caused a deluge of applications to Atom Bank. Mortgage broker London & Country reported processing more than 400 applications for the five-year fix.
“Borrowers may feel like they blinked and missed the lowest mortgage deal that the market has seen, but it shows that this type of offer will only have a very short shelf life,” says Charlotte Nelson of Moneyfacts, a comparison site, in the Financial Times. However, if you missed out on Atom Bank’s deal, there are still very tempting long-term fixes available.
For example, Yorkshire Building Society offers a five-year fix with a 1.74% interest rate. It has a £995 fee, and you’ll need at least a 35% deposit. Alternatively, if you are prepared to fix for a decade, then Coventry Building Society offers a ten-year fix at 2.49%, with a £999 fee if you have at least a 35% deposit. If you have a smaller deposit or amount of equity built up in your home, then Barclays offers a ten-year fix for a 20% deposit with a rate of 2.69% and a £999 fee.
It’s also worth noting that if you go for a long-term fix, you will also save money (for now, anyway) by not having to pay any of the fees associated with remortgaging for several years. Fix for ten years and you could save yourself around £4,000 in remortgage fees, plus the interest charged on those fees if they are added on to your mortgage.
Of course, not everyone is able to lock in their mortgage rate for the long-term. If you have plans to move in the next few years, for example, you may find the exit penalties punative. But it might still be worth remortgaging if you’re in a position to do so. Yorkshire Building Society has just launched a two-year mortgage at a record low 0.89%. This is “Britain’s lowest ever mortgage rate”, says Rupert Jones in The Guardian.
However, it’s important to realise that this isn’t a fixed-rate deal; it is a discounted two-year rate pegged to the building society’s standard variable rate. This means it could go up, causing your monthly repayments to rise, so only apply if you’re confident that you could afford higher repayments if necessary. The 0.89% rate is only available to those who only need to borrow 65% of the value of their property or less, and comes with a £1,495 fee.
Naked homes for Londoners
London mayor Sadiq Khan plans to subsidise a generation of “ultra-basic ‘naked’ homes” that will sell for up to 40% less than standard new builds, says Robert Booth in The Guardian. The apartments will have no partition walls, flooring or wall finishes, come with basic plumbing and have “absolutely no decoration”.
The houses, which will be trialled first in Enfield, north London, will be roughly 15% cheaper to build than standard new houses because of their basic design. “The idea is to strip out all of the stuff that people don’t want in the first place,” says the not-for-profit developer, Naked House.“People want to do some of the custom building.
We can make it affordable if people do some of the work themselves”.