Traditionally, people purchasing, remortgaging or doing a product transfer on a residential property are advised by brokers and banks to take a fixed term mortgage. A fixed term mortgage means that your mortgage product and rate are fixed in place for a number of years, without the risk of rates increasing and your monthly payments going up during this period. Other mortgage products such as variable rate and tracker rate loans are also available, but fixed products are by far the most popular. Currently fixed rates are generally between 2 years and five years with some lenders offering fixed deals up to 10 years. However, due to recent and frequent rate fluctuations, some have suggested that adopting long fixed term mortgages may be the remedy for the UK mortgage market.
Long Fixed Term Mortgages
When someone selects a residential mortgage through a broker, the primary concern that people normally have is stability with their mortgage payments. Ensuring that their payments aren’t unmanageable, and that they are getting the best possible rate and deal for their circumstances. That is why fixing your mortgage for 2 years or 5 years has always been a popular option as it gives certainty of rates for several years, and enables the ability to switch to a different (potentially better) deal after this period, when one becomes available.
However, as we all know, mortgage rates have not been stable as of late and on a daily basis lenders are either putting their rates up. Rates will come down, and it is now only a matter of time before we see them start to drop again. But this instability in the market has left a lot of people, including Michael Gove the Secretary of State for Levelling Up, Housing and Communities, thinking about ways of remedying this. One way that has been suggested is by copying countries such as Canada who offer long fixed term mortgages of up to 25 years.
What Is a Long Fixed Term Mortgage Product?
The potential introduction of a longer fixed term mortgage product to the market would mean that borrowers could have the option of fixing their loan for more years than the usual 2 or 5 years. Doing so could provide longer stability in rates and help borrowers avoid the potential of coming off a competitive rate within 2 or 5 years and falling on to a much higher rate.
This is one potential positive that could save a lot of borrowers from paying more on their mortgages, however it could also backfire if rates drop. For example, a borrower could select an 8 year fixed rate loan at 5.9% but within a couple of years, rates could drop to 4% or lower. That would mean that the borrower who has selected the longer fixed term product could be stuck on a rate of 5.9% for another 6 years instead of being able to benefit from the lower rates that they would have if they had a shorter fixed term mortgage. A 25 year fixed mortgage would of course be even more extreme.
What Michael Gove Has Said About Long Fixed Term Mortgages
Yesterday Prime Minister of the UK Rishi Sunak confirmed that government intervention in mortgages was not a priority at the moment, however politicians are still discussing ways that lenders could provide more support to mortgage customers. Michael Give, speaking to the Telegraph newspaper, has commented on the potential of longer term loans saying:
“One of the things that I think is right for levelling up overall is making sure we can develop the types of products that are elsewhere in the world – particularly in countries like Canada – which are long-term, fixed-rate mortgages. I think that is something we should look at.”
So could we see longer fixed term mortgages introduced to the UK, like Canada? That is up to the lenders. But what is clear is that people need mortgage advice more than ever. While rates are changing so rapidly, speaking to a mortgage broker to secure the best deal for your circumstances should be a priority. Don’t pay over the odds for your loan. Give our team of mortgage brokers today for a free initial mortgage consultation.