With a fixed rate mortgage, both the monthly payment amount and interest rate remain the same across a set time period. Generally, this period lasts for 2 to 5 years but 10 year arrangements are available. After this time you will typically be switched across to a variable rate mortgage.
A variable rate mortgage alters in relation to either the Bank of England’s base rate or your lender’s standard variable rate. This means that some months you will pay more or less than others. Those that follow the Bank of England are specifically known as trackers. Often, the lender will add an extra percentage point to this figure. With a standard variable rate, the figure is set solely by the lender, tempered by market competition and the possibility of negative press. In order to entice you into such an arrangement, lenders will generally offer a 1% discount for the first few years.
Buying Agent Advice: The Advantages and Disadvantages
According to a survey conducted in the summer of 2016, fixed rate mortgages are currently the most popular type. 52% of the market had one, whilst the remaining 48% had a variable rate mortgage. So why are they so attractive? For many people, they like to have the reassurance of knowing exactly how much money is scheduled to leave their bank account each month. If you’re living on a budget, this mortgage is far easier to keep track of.
There is also a degree of reassurance in knowing that your payments will be remain exactly the same irrespective of events in the wider financial markets. However, whilst this means you could end up paying less should interest rates shoot up, it also means you could be tied into paying more should interest rates fall.
Before agreeing to a fixed rate mortgage, we recommend that you seriously consider any upcoming long term changes to the market. For example, the UK government’s recent decision to push for a 2 year transition period following the end of the formal 2 year Brexit negotiations. This new position is likely to provide stability for the next 2 to 4 years but as experienced buying agents, we would encourage you to think carefully before agreeing to a 5 year or more fixed rate mortgage.
In recent years, the Bank of England’s base rate has been at record low levels. This has made fixed rate mortgages the more attractive option. However, there are suggestions that these rates are likely to rise from November 2017. Overall, as buying agents we would generally recommend that you think about your personal situation and with which arrangement you would feel most comfortable.
If you are unsure about which type of mortgage would be most suitable for your circumstances, our buying agents have excellent networks of trusted mortgage advisers for UK residents and overseas nationals.
County Homesearch are buying agents with years of experience working alongside mortgage lenders. Contact us on 0333 939 8300 to discuss how we can help you.