It would seem the majority of those locking into new mortgage deals were taking the opportunity to shelter from further interest rate rises by plumping for the longer-term option.
Indeed, interest rates have increased from a low of 0.1% in early December 2021 to hit 1.25% this month and experts are forecasting they will rise further – some say to as high as 3% by the end of the year.
So it’s no wonder the latest data on remortgaging from conveyancing firm LMS found 65% of remortgagers had locked into a five-year fixed rate deal – an increase on the previous month – whilst only 25% had opted for a two-year fix.
Of those remaining, 5% had taken out a 10-year fixed rate mortgage and 1% had opted for a tracker deal, which goes up or down in line with the Bank of England base rate.
Nick Chadbourne, CEO of LMS said: “Five-year fixed rate products not only remained the most popular product in May, but the amount of people taking them out, compared to other products, was up by nearly 10% from April.
“This is because, in addition to offering longer-term financial security, many fixed rate products for five or more years are now cheaper than two-year fixed rate products.”
Pros and cons of five-year fixed rates
Being locked into a mortgage rate for five years means, if rates go down again, you will be locked into a deal which may be more expensive than those which are coming to market. You will be unable to switch unless you pay an Early Repayment Charge (ERC).
But, it also provides security should rates go up.
You can find out more about these longer-term mortgages here.
LMS’s monthly Remortgage Snapshot also revealed the average monthly payment increase for those who remortgaged in May was £207.
Meanwhile, it found, 44% of borrowers increased their loan size in May and 26% said their main aim when remortgaging was to lower their monthly payments.
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