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Why is fixing for the longer term on the increase?

June 26th, 2017

In these uncertain times with Brexit negotiations just around the corner and the base rate set to stay at 0.25% for the foreseeable future, many borrowers have been staying put on variable rates to take advantage of the historic lows.

This has led some lenders, in order to divert the attention of borrowers away from competitive variable deals, to compete for fixed-rate business.

The best rates on five-year fixes has fallen below 2%, while the best two-year deals for new borrowers with higher deposits has fallen below 1%.

However, the market for even longer-term deals is heating up considerably as major lenders offer headline rates for their preferred borrowers.

Fixing for longer

Brokers say uncertainty over Brexit negotiations, ultra-low rates and the likely future trajectory of interest rates are encouraging more interest in fixed-rate deals beyond five years as rates on 10-year fixes fall below 2.5%.

High street lenders such as Barclays, Coventry Building Society and TSB are all offering 10-year fixes below 2.5% through brokers. With First Direct offering a direct-only deal at 2.49%.

“The potential impact of Brexit negotiations is leading more clients to consider medium- and longer-term mortgage deals,” says Lentune Mortgage Consultancy founder Stuart Gregory.

London & Country associate director of communications David Hollingworth says borrowers are seeking out deals beyond five years due to narrow spreads between five- and 10-year fixed prices.

“We have seen increases in mortgages beyond five years,” he said. “If you have a deal that narrows the margin between 10- and five-year deals, it can pique interest with borrowers.

“Many can see the benefits of locking in rates for the long term as it is unlikely today’s rates will ever look like bad value. There has been an increase in those looking longer.

The down side of fixing for a decade

Although longer term fixes offer greater peace of mind and security, many 10-year deals are available only for borrowers with up to 60% or 70% LTV, with heavy early repayment charges and arrangement fees of around £999. So these mortgages are not suitable for everyone.

Remortgaging on the increase

Remortgaging accounted for a third of all mortgage lending during the month of April as it continued to prop up a slowing housing market. With the number of remortgage transactions rising by 8% to 38,475, according to data from conveyancing service provider LMS.

The Council of Mortgage Lenders has revealed total mortgage lending fell by 11%, meaning remortgaging’s market share grew to account for 33% of total lending for the month.

Intermediary enquiries rose as re-mortgagors chased the best possible deals, with the number choosing to consult a broker rising from around 63% to 72%.

Under a fifth of those who re-mortgaged did so to unlock equity to pay off their debts – but this was a significant jump from the one in ten who did the same in March.

More than 35% fixed for five years, in contrast to the 8% who previously had a fixed five-year deal, continuing a three-month trend of re-mortgagors seeking greater security by opting for longer-term deals.

LMS chief executive Andy Knee said homeowners should “seriously consider” re-mortgaging now, as the general election and Brexit could lead market conditions to deteriorate.

He added: “The fall in real wages in the first three months of the year has placed a real strain on family finances.

“Despite this, it is encouraging to see increased numbers of homeowners planning their finances in advance by re-mortgaging in order to pay off debts, and consulting with brokers in the process to ensure they get the best possible deal.”

How Contractor Mortgages Made Easy can help.

If you’re considering a longer term mortgage fix or are thinking of re-mortgaging, make Contractor Mortgages Made Easy your first port of call.

Media Contact: Sarah Middleton, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com


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