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5 year fixed rate mortgage- Is now the right time?

5 year fixed rate mortgage- Is now the right time?

The 9 members of Monetary Policy Committee recently voted 7-2 to keep base rate at its record low of 0.25%. However in the meeting minutes they talked openly about rising them in November/December 2017. So, to keep ahead of the possible increase, should you secure a 5 year fixed rate mortgage now?

Why Take A fixed Rate?

The reason most people choose to fix their mortgage is the certainty that it brings to your monthly repayments. It therefore provides peace of mind in knowing your payments will not change regardless of fluctuations in base rate. Considering fixing your mortgage for 5 years will enable you to accomplish that as well securing a good interest rate.

There are many five year fixed rate mortgage products available from as low as 1.55%. The rate is obviously dependant on the size of deposit or equity within your property. Once your mortgage is on the five year fixed rate mortgage the interest charged will be locked for 5 years regardless of any change to the Bank of England base rate. Typically, borrowers will pay a premium to have that security and 5 year fixed rate mortgage products are priced higher than 2 or 3 year fixed rate alternatives. The lender is offering peace of mind for longer and hence charges more for the priviledge.

Taking a fixed rate is simply a gamble against the alternative variable mortgage product over a set period. In a rising interest rate environment, it’s a good idea to take a fixed rate especially before interest rates increase. However, if during the fixed period rates start to fall below the level of your fixed rate then unfortunately, your interest rate remains at the level of the fixed rate. Hence if you take a fixed rate at the top of the rate cycle then you may be paying too high a rate when base rate starts to come back down. Therefore, the timing of taking a fixed rate and the rate that you secure is obviously a key decision.

Why Should I Consider a 5 Year Fixed Rate Mortgage Now?

The Bank of England is set a target by the Government to keep inflation under 2%. Inflation is expressed as a percentage and is simply the measure for the annual increase in prices (RPI). Due to economic pressure following Brexit, inflation is currently at 2.6% and is forecast to rise to 3% by October. To combat inflationary pressure (increased spending) the Bank of England can achieve this by a rise in base rate.  The public will have less to spend on other goods if their cost of living has increased which controls inflation.

Base rate is forecast to rise to 0.5% by November 2017 given the next inflation figures are released then. This could be followed by further 0.25% increases at regular intervals depending on economic conditions. By the end of 2022, five years from now, the Bank of England base rate is predicted to be around 2%. Therefore a five year fix rate mortgage is worth considering to protect your mortgage payments against these expected increases. You can search the 5 year fixed rate mortgage market using our online sourcing tool here.

However, a 5 year fixed rate mortgage may not be the right product for everyone. In order to make a product recommendation all your particular circumstances, mortgage needs and objectives need to be taken into consideration.

Mosaic Mortgages are specialist mortgage advisors that can help with all your 5 year fixed rate mortgage enquiries. The initial criteria assessment as well as obtaining a credit scored decision in principle from the lender is a free service offered by Mosaic Mortgages.  Contact us for a no obligation quote and to see which is the best scheme currently available for your particular circumstances.



The author, Shaun Bielby has over 25 years experience in financial services and is a specialist mortgage and protection advisor with Mosaic Mortgages who are mortgage brokers that give independent mortgage advice to first time buyers, borrowers with an adverse or bad credit mortgage history or those looking to invest in buy to let.