Two-year mortgage deals fall for the first time in a year – is now the time to fix your mortgage?
New, lower two-year mortgage rates mean it might be a good time to fix - here's how to find the best deals
THE average two-year fixed mortgage rate has fallen for the first time in a year to 2.49 per cent.
This is the first times average rates have dropped since their record low of 2.20 per cent in October 2017.
It means now could be the time to remortgage, to lock in low rates.
This is especially true for anyone sitting on a standard variable rate mortgage - where the average interest rate has reached 4.89 per cent.
Charlotte Nelson, finance expert at comparison service Moneyfacts, said: "[This is] the first time the Moneyfacts UK Mortgage Trends Treasury Report has recorded a reduction to the average mortgage rate since the November 2017 base rate rise.
"Many would have assumed that the average rate would have increased in the aftermath of the base rate rise this August, however the opposite seems to be the case.
"Providers have started to reignite competition in the market to attract remortgage customers and retain their mortgage books."
Homeowners may wish to move fast, as Moneyfacts has suggested that the low rates may not be here to stay.
Kate Burns, founder of independent mortgage and insurance advisor KB Mortgage Services said: "Now is definitely a good time for home owners to get themselves onto a fixed rate – lenders are lowering their prices in a bid to compete with each other, but it’s difficult to predict whether they’ll drop again, and even if they do, they won’t last forever.
"The Bank of England may increase the base rate again too – pushing up costs for those on a variable rate – and there’s no guarantee they won’t rise again.
"So it’s wise for borrowers to do some shopping around right now."
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.
If you are thinking of fixing, it's important to shop around to get the best deal.
They're not ideal for everyone, since the rate you get often depends on how big your deposit is.
First-time buyers who only put down a small deposit are unlikely to get a good deal for that reason.
Deborah Vickers, channel director at personal finance comparison site moneyguru.com explained: "Regardless of the mortgage deal, do your research. There are so many different types of deals.
"Fixed rate mortgages are great as you know exactly what your mortgage will cost, so can help you with budgeting.
"[But] the rates on a fixed deal are normally higher than variables products and if the interest rates fall, you won't see your payments drop."
If fixing is right for you, you need to decide how long you'd like to fix for.
You may wish to fix for 10 years to keep repayments under control or because you think interest rates will continue to rise.
But you might want to go for a shorter lock-in so you can remortgage for better rates once you own more of your house.
Interest rates aren't the only factor you should consider when choosing a mortgage.
MORE ON MONEY STORIES
Worrying research from online mortgage broker Trussle found that low interest rates can cost you a fortune in fees and charges.
If you do remortgage, set a calendar reminder for when the deal runs out. Otherwise you could end up spending an extra £2.5k a year on a standard variable rate tariff.
Last month, research showed that fixed-rates were lower than usual for buyers with 5 per cent deposits. So first-time buyers should always do some research to see if there is a deal that's right for them.
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