The Daily Telegraph Online: Mortgages: Fix your rate, but when and for how long?
Tue 06 Aug 2013
Fixed rate mortgages could fall even further, brokers say, but they are not right for every borrower. The Bank of
England's commitment to low rates is welcome news for borrowers and is likely to make fixed-rate loans even
more attractive. experts said today.
Although the Governor of the Bank of England, Mark Carney, indicated that measures to stimulate the economy
further were still on the table, his comments were swiftly interpreted to indicate that rates would remain at current
levels until 2016 at the earliest.
With little prospect of cuts mortgage borrowers are steering clear of tracker mortgage deals where rates are
linked to the Bank's Rate. Instead, the "vast majority" are opting for fixed rates, according to analyst David
Hollingworth of broker London & Country. But how long should that fix be? The very lowest rates apply to
two-year fixed rates where a record-breaking deal at 1.49pc is currently available from HSBC (provided borrowers
have a minimum 40pc deposit or equity). For those with smaller deposits the best two-year rates fall around the
Two-year fixes are of lmiited appeal to borrowers with big mortgages who worry that their deal will come to an
end just as rates start to climb. "The trend is likely to see more borrowers edging toward medium to longer-term
fixed rates in a bid to protect against rate increases that may still be a couple of years away," says Hollingworth.
"Shorter term rates remain lower but could come to a close just as rates are on the move." Five-year rates are
about one percentage point higher than two-year deals, again depending on the proportion of the property's price
the homeowner borrows. So Nottingham Building Society offers a five-year rate at a hefty 4.39pc, for example,
but this is available to borrowers with just 10pc deposit or equity. At the cheapest end of the five-year deals is a
2.59pc mortgage from Norwich & Peterborough, but here the borrower needs to put down 35pc.
The ten year rates are higher still. The lowest, at 3.84pc, is from Norwich & Peterborough, and requires a 25pc
deposit. Cheslea Building Society, Barclays and Santander all also offer fixed rates of between six and ten years'
duration. Chelsea's seven-year rate of 3.59pc, requiring a 25pc deposit, is among the lowest of these longer-term
Today's guidance from the Bank of England may result in lenders re-pricing their mortgage deals. Jonathan
Harris, director of mortgage broker Anderson Harris, said: 'We expect fixed-rate mortgages to fall even further on
the back of this announcement. They may already be at historic lows but if lenders are to convince borrowers to
opt for a fix when interest rates are highly unlikely to rise, then pricing needs to be attractive. Borrowers who
prefer the certainty of a fixed rate and particularly those looking for something beyond the next three years when
it is less certain what will happen with interest rates, should consider a five-year fixed-rate deal.'
Other commentators agreed, arguing the knock-on effects for the housing market would be positive. Peter
Rollings, of estate agent Marsh & Parsons said: "Mark Carney has given the UKs housing market a significant
boost. This is a highly important statement which will allow lenders to offer attractive fixed rate deals to potential
buyers and will surely lead to greater demand and activity in both the resale market and provide a fillip for first