Is a two year fixed mortgage prudent enough?
Darren Cook, mortgage expert at Moneyfacts.co.uk, comments:
“If you went for an interview today and your potential boss asked you, where do you see yourself in five years time? You would no doubt respond with a confident answer of, pretty close to where you are sitting right now.
“If you are currently looking for a mortgage and a provider or broker asks you the same question, your answer on affordability would be less confident. But don’t worry; most of the world’s economists are not too bullish about interest rates either
“Inflation is currently running at 3%, well above the Government’s 2% target and previous rate cuts have had little effect on mortgage rates. Jean Claude Trichet, Governor of the European Central Bank recently hinted that the ECB has not ruled out raising rates in the near future. Some analysts are predicting that the Bank of England may need to push up rates three times before the year is out.
“With fears of base rate increases, SWAP rates at over 6.3% and rising and lenders continuing to price more for risk, it is likely that mortgage rates will continue to follow suit. Under these uncertain times, many borrowers are looking to fix their mortgage payments and a five year deal could become a preferred option rather than the popular two years.
“The current average rates for a two year fixed deal stands at 6.68%, which equates to a monthly repayment of £1,029.75 on a £150K repayment mortgage. In comparison, the average five year fixed stands at 6.66%, with a monthly repayment of £1,027.86.
“There is little difference between the initial monthly repayments of these two deals and, in my view, we have now seen the end of ‘loss leading’ product pricing within the two year market.
“With the short and medium term economic outlook not looking too promising, homeowners are less likely to move home due to falling property values and banks lowering the maximum loan to values available. There is now new scope for a borrower to possibly take a more prudent approach to look past previously popular two year deals and look for longer term stability.
Moneyfacts Group
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