Getting a new five-year fixed mortgage before the election could save homeowners £4,350 a year
LOCKING into a five-year fixed-rate deal before the general election could save homeowners £4,350 a year on their mortgage.
And although you could save more by locking into a two-year deal, a five-year fix offers the benefits of low rates for a longer period of time.
Political uncertainty has caused the market to slow down, leading to a number of high street lenders dropping rates in an attempt to entice homeowners.
And with a pre-Christmas election on the horizon, some experts are warning that now might be the best time to remortgage and fix into a long term deal with low rates.
This is because the outcome may have an effect on interest rates, which could rise.
"If you're thinking of switching to a new fixed rate soon, it's worth making that move before the election if possible and locking in at the current excellent rates," urges Andrew Hagger from . "Who knows what may happen depending on the election result?"
Bill payers borrowing 60 per cent loan to value (LTV) could see their repayments drop by £4,345.80 in a two-year deal from Barclays at 1.21 per cent.
But for an extra £21.34 a month, the same homeowner could sign up to a five-year deal from TSB at a rate of 1.44 per cent, giving an annual saving of £4,601.88.
It's the same effect for those looking to borrow 70 per cent LTV.
Bills will drop by £4,513.32 a year in a two-year deal with HSBC, but for another £27.12 a month you could lock in to a five-year deal with Barclays and still see annual savings of £4,187.88.
HOW TO DECIDE HOW LONG TO FIX FOR
WITH so many options, it can be difficult to work out just how long to fix your mortgage for.
Here are the pros and cons of each option:
Two-year fixed mortgages
PROS
Good for people who can only afford the cheapest possible deals as two-year deals offer the lowest interest rates.
If rates fall rather than go up, you could get a good deal when you remortgage.
CONS
It won’t be long before the deal ends and you’ll need to remortgage again, possibly with a worse rate.
If you don't remortgage you'll end up on your lender’s Standard Variable Rate (SVR). These have much higher interest rates so you’ll face a significant hike in your monthly repayments.
The rates aren't much higher than the five-year deals that are currently on the market.
Five-year fixed mortgages
PROS
Gives you a decent length of security without locking you in too long.
Great for first-time buyers with small deposits, as rates remain stable when compared to shorter deals.
Also good for busy people who can’t face the remortgaging process coming around after two years, or if you’re coming to the end of your mortgage.
CONS
Higher rates than two years but only marginally lower than 10 years.
10-year fixed mortgages
PROS
Long-term security. Only one arrangement fee for the 10 years. These can be between £500 and £2,000 – which adds up every two or five years.
CONS
If you need to end the deal early you will face a hefty penalty.
Not great for most first-time buyers as the best deals aren’t available to those with small deposits.
The research also shows that homeowners who want to take out a 90 per cent LTV loan will be able to save £3,970.92 - by locking into a two-year deal with Lloyds at a rate of 1.77 per cent.
But a five-year deal with Virgin Money will only cost them an extra £561.24 a year, slashing by £3,409.68 over all annually.
Money expert Rachel Springall said: "Borrowers may well be turning to five-year fixed mortgages to secure their monthly repayments for the longer term during a period of economic uncertainty.
"Lenders are competing on price as it’s a prominent way to compare deals, a move to attract not just new customers, but also to retain those who may be looking to switch elsewhere.
"There is no guarantee that these low rates will be around for long, plus borrowers must be aware of the overall cost of the deal and not be swayed by the initial rate alone."
If you're interested in locking in to an even longer deal, Yorkshire Building Society recently launched a 15-year fixed-rate mortgage.
The lender followed Virgin Money which became the first lender to offer home loans fixed over the time period.
In June, Loughborough Building Society became the latest lender to offer a mortgage that lets buyers borrow up to 5.5 times their salary.