Typically, borrowers have preferred to fix their rate for the shorter period of two years but it would appear the longer-term alternative has begun rising in popularity lately.
According to Moneyfacts.co.uk, there are currently 1,542 five-year fixed rate deals to choose from on the mortgage market. This compares to 796 in September 2014.
What’s more if you are a borrower who needs to borrow 75% of your property’s value – in other words if you have a 25% deposit or 25% equity in your home – you can make the most of the largest choice of deals.
Fixed-rates a firm favourite
Fixed-rate mortgages in general have become a popular choice amongst borrowers – in fact nearly three quarters of all outstanding mortgage balances were taken out through fixed deals as opposed to variable or tracker deals, according to the Bank of England and the Financial Conduct Authority (FCA).
But Darren Cook, finance expert at Moneyfacts, said latest figures on new mortgages taken out between April and June this year showed over 92% of these were fixed rates. As such he thought this fixed-rate market was expected to increase even further.
He said: “With average fixed interest rates currently near historic lows, there is competition among mortgage providers to not only grow their mortgage books, but they are fiercely competing to make sure that their mortgage rates appear competitive to retain their existing borrowers, making sure they do not drift away to another mortgage provider.”
Pros and cons of a five-year mortgage
Fixing your mortgage rate for five years provides less flexibility. Indeed, if your circumstances changed and you wanted to get out of the deal you may have to pay an early repayment charge to exit.
This is why two year deals have traditionally been more popular. However, political uncertainty and speculation over interest rate rises have caused many people to seek longer-term certainty in the five- year deals.
Cook explained: “Historically, borrowers seemed to have preferred the short-term commitment of a two-year fixed rate deal, but now that product availability has significantly increased in the longer-term five-year mortgage market, borrowers may be looking beyond interest rates and more towards the stability of setting monthly mortgage repayments and hedging themselves against uncertain economic conditions in the longer term.”
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