With many statistics in the
property market following a downward trend, the five year fixed rate is
certainly on the up and a recent survey suggests that it is currently
the most popular deal with borrowers*.
More and more borrowers are viewing longer-term deals
as the safer option in the current climate. So why are people opting
for a longer tie-in when 2 or 3 year fixed rates have been popular for
Appeal of the longer term
In recent months, many
borrowers have experienced a short-term deal coming to an end in a
market where the number of mortgage deals available has declined.
Experts have long advocated short-term fixed deals as the best option
for borrowers, due to the low overall cost.
The effects of the credit crunch on the mortgage
market and lending criteria, however, have changed the way in which 2 or
3 year fixed rate deals are perceived. Many lenders have increased the
fees associated with such deals, so the cost to the borrower in the
long-term has risen.
Set this against a backdrop of rising food and fuel
costs and stagnating salaries, and the appeal of a longer-term fixed
rate mortgage is clear. Aside from the inconvenience of rearranging a
mortgage every 2 years or so, the security of a longer-term deal
provides peace of mind and the fact that monthly payments are set for
several years or more means that there won’t be any surprises for the
Lenders are clearly warm to the concept, too, as there are plenty of five and ten year deals on offer with attractive rates.
What to watch out for
If you are considering a
long fixed-term deal, make sure you are aware of the early redemption
charges as they tend to be more substantial than shorter fixed-term
mortgages. If your tie-in period is lengthy, it may not be appropriate
for your life plans.
Similarly, check the amount of overpayment allowed should you wish to make additional payments during the fixed rate period.
If you are considering fixing for a very long period,
such as 25 years, bear in mind that interest rates can fall and, while
you might be protected against a rise in the Bank of England base rate,
you could end up paying more than you need to for a very long time.
What suits you?
As with any major commitment, it makes sense to look
at all options and consider which one is best for you. Take into account
your long-term career plans, the impact of family life and how
important it is to be able to budget. A long-term fixed mortgage is not
for everyone, but if knowing what your monthly payments will be for a
long time would be a comfort, then it could be for you.
With a five year fixed rate mortgage from Teachers
Building Society, you can overpay by up to 20% of the loan outstanding
per calendar year without charge. For more information visit our fixed rate mortgage page.