The expectation of rising interest rates is causing many borrowers to move to longer term fixed rates now in anticipation, despite the fact that the Bank of England has not raised rates at this stage despite some expectations that it would do so.
An increased level of 5 year deals has been recorded recently, according to Telegraph Money.
Since the financial crisis, the bank rate has been held at record lows, with the recent decision to hold rates at 0.5% extending that run further.
There has been a 70% increase in the amount of 5 year fixes taken out compared with April 2016 according to brokers London & Country.
The most popular fix has been the 2 year in recent times as it's cheaper than the longer duration alternatives.
However brokers Private Finance have recorded the opposite, with Shaun Church asserting that:
In recent years, borrowers have grown to accept this low rate environment as the ‘new normal’ and are far more confident that rates will remain low for the foreseeable future.”
Taking out five separate two year fixes would leave a borrower much worse off than if they had taken out a ten year fix in the event that rates rise significantly over that time.
Another advantage would be one broker fee over the 10 year period rather than several.
There are risks in fixing for longer however, if for example, a borrower has taken out a 5 year fixed rate loan 5 years ago, they would be significantly worse off than those that took out 2 year fixes due to higher rates. Another factor is that should you wish to move house in that time, you could be hit with early repayment charges.
Are you thinking of making a move this year? Our Mortgage team here at Westminster Wealth can ensure that you receive the most suitable mortgage for your personal circumstances, needs and objectives. Contact us today.
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