Borrowers flock to 5-year fixes
While the Bank of England Monetary Policy Committee decided to hold the base rate at 0.5% for another month there is an expectation in the industry that these historically low rates will soon disappear.
Charles Haresnape, managing director of Aldermore, said: “We have seen a three-fold increase in the number of people opting for 5-year fixes in the first half of this year compared to the same period last year.
“We predict that this trend will continue because people are increasingly looking to lock into low rates for longer due to the economy improving and the perception that the base rate will be on the rise in the future.”
Brokers are claiming HSBC’s latest 5-year fixed rate at 2.59% is the lowest rates will get at 60% loan to value.
Lea Karasavvas, director of Prolific Mortgage Finance, said five year money has been dropping and dropping for some time and seems finally to have bottomed out.
He said: “The 60 and 65% LTV market for five year fixes has been squeezed as much as it can be but there is room for competition higher up the LTV scale at 85%.
“We have started to notice margins dropping at the higher LTVs due to the extension of the Funding for Lending Scheme until 2015 which is good news for borrowers.”
Dominik Lipnicki, director of Your Mortgage Decisions, said: “It makes sense to lock into a five-year deal now because rates are probably as low as they will go. Without a doubt we are seeing a greater tendency towards longer-term fixed rates.
“In the short term people don’t expect interest rates to rise but over the medium term it is likely that rates will start to creep up.”
With little difference between a 2-year fixed rate and a 5-year fixed rate borrowers are looking past the initial rate and considering how cost effective the deal is overall.
Brian Pitt, chief executive of Rockstead, said: “I think borrowers are wising up to fees and if they are not they certainly should be. There is more to choosing the best mortgage deal than opting for the lowest rate which is what the IFA is for. “Looking past the headline rate at the fees and the real cost of remortgaging every two years instead of locking into a medium or long-term is what brokers should be doing.”
Typically 2-year fixed rates come with an arrangement fee of £999 while five year deals are priced at £1999.
But Karasavvas said it makes sense for borrowers, who have no plans to move house, to take the hit on the higher fee because they will save money in the long term.
He said: “Paying arrangement and valuation fees every two years does not make sense if the borrower has no plans to move house. There is a definite concern about where the market will be in two years from now driving borrowers to snap up the record low rates we are seeing.”