One of the big questions around homeowner mortgages at the moment is whether it’s best to tie in for a relatively short fixed deal – or go for the longer-term security offered by 5- or even 10-year fix product.
With latest industry figures from the mortgage market showing an upturn in lending during May compared to April – a trend that has even seen the buy-to-let sector bucking a general decline – it’s a tricky conundrum, made trickier by the uncertainty over what a potential no-deal Brexit might bring.
The attraction presented by a 5-year fixed deal can’t be under-estimated.
Earlier this year, the Daily Mail’s personal finance website This Is Money reported that 5-year deals cost almost the same as their 2-year counterparts. In addition, such a product would effectively bomb-proof your mortgage payments in the event of a sudden dent in the economy. It’s not hard to see why some customers might be tempted.
What you need to consider, though, is the trade-off that means you risk becoming stuck with a deal that sees you paying over the odds if or when interest rates take a downward turn.
Now, realistically, that’s unlikely in the very short term. Indeed, all the signs are that if interest rates are likely to move, it will be up rather than down over the next couple of years. But beyond that? There are no crystal balls and no guarantees.
One of the worries some people may have about taking a 2-year deal right now is that 24 months may not be long enough to see out any post-Brexit bumps in the economy (always assuming the UK leaves the EU on October 31).
And what of the 10-year deal – the big daddy of the personal mortgage that is now finding favour with some High Street lenders?
Well, generally speaking, 10-year deals are more expensive, to begin with, and, of course, the same concerns that relate to a 5-year fixed deal become even more acute in the context of the payments you’ll be making over a decade.
They’re also not as widely available – the lack of choice is one of the reasons they cost more – which means you’re going to spend a decade with a lender that may not be able to offer you the support in other areas of your finances that a competitor might.
Having the security of knowing exactly what you’re going to be paying every month for a longer period of time has distinct advantages – particularly if you’re expecting your other costs to increase (maybe you’re starting a family or planning a wedding, for example) – because it allows you to have a clear budget.
But long-term mortgage products aren’t for everyone and there are a number of things you’ll need to consider before you opt to tie yourself into one lender for the long haul, among them:
What are the exit fees? If you want to get out of your agreement early, are the fees going to be punitive?
What are the set-up costs? How much will it cost you to set up the mortgage to begin with?
How much extra will the repayments cost you? It’s all very well having a fixed repayment but calculate what you’ll be paying over the lifetime of each different product and then decide whether the additional cost is worth it.
Are there any special conditions attached to the mortgage? In other words, read the small print and identify any potential surprises!
What does the future hold? None of us know for sure what’s in store 2, 5 or 10 years from now, but most of us have a rough idea of what we’re hoping to do and achieve. If emigrating to Australia is a dream, then maybe a 5 or 10-year deal isn’t the right product, no matter how enticing the security.
If you’re in the fixed deal conundrum, we can help you. At Oportfolio, we’re mortgage experts with many years of experience helping our clients to choose the mortgage that best suits their needs for today and tomorrow. Why not get in touch and have a chat with one of our friendly advisers and see how our expert advice and support can help you to buy your dream home or remortgage to a better deal.
Want to know how other clients felt about working with Oportfolio? Watch Gus and Selena’s video story!
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.