Five is the new two!

When it comes to mortgages, five is the new two. Having long played second fiddle to two-year fixed-rate mortgages, five-year fixed deals are enjoying a surge in popularity as homebuyers opt to lock in to some of the lowest rates ever seen in the UK.

While the average rate for a five-year fix has fallen to 4.49%, there are deals at between 2.99% and 3.5% if you are fortunate enough to be borrowing a maximum of 60-70% of the property’s value.

The premium you now have to pay for a fixed rate, compared to a tracker or discounted variable rate, has narrowed and in some cases gone negative.

That has made fixed rates a more attractive option, despite the fact that many economists believe it could be years before we get a Bank of England interest rate rise.

Two-year fixes were traditionally the most popular because they offer a competitive headline rate, combined with the freedom to remortgage to a new deal after a relatively short time. But there is now little difference between the best two, three and five-year fixes, plus, you have to factor in the extra fees you will pay in just two years if you take out a two-year fix and then switch to a new deal as soon as it ends.

We believe that, in general, five-year fixes continue to offer the best value for those wanting a fixed-rate mortgage, providing that having early repayment charges for five years is not expected to be a problem.

Although the fall in the cost of new fixed rates is great news for borrowers, this is often being offset by a rise in the cost of the fees you must pay. Therefore, when comparing mortgages, it is vital to look at the total amount you would repay, including fees, over the term of the deal.

Which is best for you will depend, in part, on how much you are borrowing. Very broadly speaking, the larger the mortgage, the more worthwhile it is to pay a big fee in order to get a lower rate.

However, there are other things you need to bear in mind, such as whether there are any freebies involved (those remortgaging can often get a free valuation and free legal fees), and how fussy and efficient the lender is (for example, HSBC is well-known for being quite picky).

If you are looking for a fixed rate for more than five years there are fewer products, and you will usually pay a bit more than with the shorter-term deals – plus, you need to bear in mind the early repayment charges.

To find out whether now is the right time for you to remortgage on to a fixed rate, please contact Jacky on 07967 649804, or send us an email using the “Contact Us” tab at the top of this page.