Why fixed rates are always in fashion
Filed under: Mortgages
The Bank of England's base rate has been at its record low of 0.5% for longer than most imagined possible.
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Christine Lagarde, managing director of the International Monetary Fund, recently urged the Bank of England to cut rates further and the financial markets have also priced in a rate cut to 0.25% by the end of this year.
Many economists now expect that the first rise in the base rate won't come until 2016 at the earliest.
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If they're right, this means that low tracker rate mortgages make sound financial sense. They are currently much cheaper than their equivalent fixed rates after all, which means your monthly repayments will be lower. Plus if the base rate doesn't rise from 0.5%, your repayments will remain low.
In that context, it's understandable that many borrowers are concluding that paying a premium to fix your rate doesn't' seem like a particularly savvy move. And there have been articles across the media elucidating this in current weeks, including Is now the time to get a tracker rate?
But let's hang on a minute!
There are a lot of ifs in the above scenario. Economists have been wrong before and they'll be wrong again at some point. Nobody knows for sure what will happen in the next few months, let alone the next few years.
But one certainty is that if you want to be 100% sure that your monthly repayments won't change for an agreed period, you need to fix your rate.
That's why fixed rates will always be popular, no matter what the so-called experts predict will happen to mortgage rates.
Long-term fixed deals in particular are currently very good value for those who want payment security for the coming five years or more at a competitive rate of interest.
Last week Skipton Building Society launched four stonking long-term fixed rates that will appeal to borrowers who simply want to stop worrying about what the Bank of England may or may not do with its base rate!
The first is a 7-year fixed rate available up to 75% LTV at a rate of 3.99% and up to 85% LTV at 4.89%.
Two 10-year deals are also available, at a rate of 4.49% for mortgages up to 75% LTV and 4.99% up to 85% LTV.
All four products have an arrangement fee of £995 and revert to the Bank of England's base rate plus 4.45% upon completion (currently 4.95%).
These deals are competitive and the society says they enable borrowers to 'insure' themselves against any potential rate increases in future.
Skipton explained that it seized the opportunity to take advantage of extremely low swap rates in order to provide these long-term products, which are targeted at borrowers whose priority is having certainty over their monthly mortgage payments for the longer term.
Of course, you do pay a premium for the long-term security offered by these deals. So they're not really suitable if you simply want the lowest possible rate.
But if you want a long-term good value mortgage, then a five to 10-year fixed rate is certainly worth looking at.
One thing to consider with any long-term fix is that they usually come with steep penalties if you want to switch or repay your mortgage early.
In the case of the Skipton 10-year deals, for example, you will be subject to an Early Repayment Charge that reduces on a sliding scale over the 10 years, from 6% of the outstanding balance in year one to 2% in the final year.
In other words, they are a long-term commitment and you should also check if any long-term fixed rate is portable if you think you will move house during the fixed period.
If you are comfortable with both of those things, a long-term fixed rate is definitely worth considering. And below are some of the best on the market right now.
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