At the end of last year, the Bank of England (BoE) increased the base rate by 0.25%, turning the housing market upside down. Two year fixed rate mortgages gained market share after the hike (a change from the gradual decrease they had been experiencing throughout 2017) while five year fixed mortgages fell for the first time in almost a year.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
It seems the BoE rate increase has caused short-sightedness in borrowers wanting to lock in great rates now in order to save money with little regard for how their terms will change after the initial period.
What rates are on offer?
Currently, there are a number of attractive 2 year and 5 year deals available for borrowers. With a 15% deposit, you can obtain a 5 year deal with rates around 2% from a variety of lenders.
For those seeking a 2 year deal, lenders require a 10% deposit and are also offering loans with rates at approximately 2%.
So with similar deals available for both 2 and 5 years – how do you know what option is the right one for you?
Which is the better deal?
A 2 year deal may seem like it saves you money on your monthly repayment, but you also need to consider the costs associated with remortgaging in 2 short years. Additionally, there’s no guarantee what the rates will look like when it comes to remortgaging. No one can predict how the market will change, what inflation will be, or how many more times the Bank of England will raise rates.
Even though interest in 5 year fixed mortgages dwindled towards the end of 2017, it’s worth noting the figure reported in November was the second highest on record – 43% market share. It’s easy to see why 5 year fixed mortgage rates are still in high demand – they offer more stability than 2 year fixed.
The housing market is in a unique place at the moment, and securing a loan with a great interest rate and terms, regardless of any outside factors such as market shifts or additional rate changes is appealing.
Other considerations for your decision
When deciding to go with a 2 or 5 year deal, along with the financial implications, you should factor in the length of time you expect to be at the property and whether or not you have plans for expansion or think you will outgrow the space quickly.
Starting a new business and becoming self-employed may also affect your decision. The reality is that the remortgaging process is just as time and labour intensive as the initial mortgage search, so you should ask yourself – do you really want to be doing it all over again in 2 years?
Next steps
Working with a mortgage specialist is a good way to get the best loan for your needs as there are so many factors to consider when choosing your mortgage.
Compare mortgage deals for you
Ensure you have the right mortgage for your circumstances. Chris can help find the most competitive rate of interest for you for the right length of time that suits your future plans.
Tel: 01403 780 770
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