Remortgaging 2018 – To fix or not to fix
Should you consider fixing your mortgage now!
With the Bank of England suggesting that interest rates are expected to rise in the coming months. We have put together this guide to help you to decide whether you should fix your mortgage now.
- Why you should consider fixing your mortgage now
- When interest rates are likely to rise
- How long should you fix your mortgage for (2,3,5 or 10 years)
Why should I fix now?
With the uncertainty surrounding interest rates, the expectation is that the next move is likely to be upwards, therefore fixing your mortgage rate now, could be a wise move. Fixed rate mortgages, act like an insurance policy, you know exactly what your mortgage outgoings are going to be for the fixed period of the mortgage and you are protected from any sudden interest rate rises.
The Bank of England base rate has been historically low for so long many borrowers have not known any different, so any rise in rates could have a dramatic effect on the disposable income they have or their ability to keep paying the mortgage. The reason you should be considering fixing your mortgage now ahead of any rise in the Bank of England base rate is that the rate you fix at will be lower than if you wait until rises start to happen.
Once the fixed period expires then the rate converts to the lenders Standard Variable Rate or you can decide to fix for a further period of time.
If you currently pay the Standard Variable Rate, you are more vulnerable to interest rate rises, as lenders will raise the rate but not by a fixed amount so any increase could be by as much as 2%. You should check the terms and conditions of your current mortgage to find out what that increase is likely to be.
The Bank of England currently has a base rate at a record low of 0.25%. If you have a Tracker mortgage then these will rise as they are linked directly to the Bank of England base rate. Tracker mortgages will move in step with the base rate as detailed in your mortgage paperwork (e.g base rate plus 1% above).
When are interest rates likely to rise?
The Bank of England base rate of 0.25% has been at a historic low for 10 years and bearing in mind the normal level of interest rates previously has been nearer 5% it is not difficult to see that rates are more likely to rise. As the economy continues to improve and inflationary pressures grow the only option the Bank of England has is to raise rates.
The general option up until now was that base rates would not increase until 2018 at the earliest but after the last Bank of England rate setting meeting, where they nearly raised rates, commentators are now predicting a rate rise could be as early as this November or December.
If rate rises are just around the corner, then now is the time to fix, ahead of everyone else looking to do so, as the best deals will quickly disappear as borrower’s rush to fix their mortgages to avoid being vulnerable to unknown amounts of rate rises.
How long should you fix your mortgage for?
When considering how long to fix your mortgage for you need to consider what your future plans are likely to be and what the interest rate is for any given period of time. When you fix the rate of your mortgage you will have higher exit fees and penalties, therefore if you wish to move property or pay off the mortgage either in part or full it will cost more to do so. Rates will also vary according to how the borrower perceives the economy is performing and therefore where interest rates are likely to be in the future. A 5 year rate may not be as low as a 2 year rate, it is therefore important to seek expert advice before making any changes. The other factor to take into account is the loan to value you will require when you re-mortgage your home. As with all mortgages the lower the amount you need to borrow compared to the value of your home the more competitive the rate will be.
When deciding if a fix rate mortgage is right for you, take into account what your current mortgage rate is and any fees for exiting your mortgage compared to a fixed rate deal, how likely it is you will either want to move or pay your mortgage off and when. Also what would be the effect to you if interest rates start to rise, how would it affect your finances.