Now fix your home loan for five years, say experts

Although interest rates have been at their highest for nearly two decades, mortgage experts believe now is a good time for homeowners and homebuyers to lock in a fixed-rate loan.

They argue that despite the increase in rates in the wider economy to 4.25 percent, mortgage prices have been falling steadily in recent months, making some fixed-rate deals extremely competitive.

In the wake of Kwasi Kwarteng’s disastrous budget last fall, which wreaked havoc on the stock market and sent government bond prices crashing, the average five-year fixed rate home loan stood at 7.6 percent.

But according to rate controller Moneyfacts, prices have been falling steadily, in part due to the calming influence of Jeremy Hunt as Treasury Secretary.

The average rate for the same fix — again borrowing up to 65 percent of the property’s value — is now about 5.3 percent. One of the cheapest solutions is Virgin’s offer of 3.82 per cent plus a closing fee of £995 for the same loan-to-value.

David Hollingworth, an associate director of Bath-based broker London & Country Mortgages, says: ‘We could be close to the peak of base rates, and lenders are anticipating this by offering some great new, competitive home loan offers. offer.’

He believes that for first-time buyers and homeowners who are nervous about the future – especially job security and house prices – a five-year fixed-rate loan is a good option. He adds: ‘If you are worried about money matters, a contract with a fixed interest rate offers security in an all too uncertain world.

“Many lenders think interest rates are pretty much at their peak and may soon fall – and this is being factored into new, attractively priced mortgage products.”

Virgin’s five-year, 3.82 percent fixed-rate loan will entice homeowners coming to the end of a deal who have a significant portion of equity in their home.

For starters with a 10 percent down payment, Virgin’s five-year fixed rate offer of 4.42 percent is attractive. The set-up costs also amount to € 995.

Ray Boulger, a mortgage expert at rival broker John Charcol, also believes a five-year fixed-rate loan will suit many homeowners.

He says: ‘I don’t see many mortgage offers improving in the short term. You could take out a two-year fixed interest loan in the hope of lower mortgage rates in 2025, but that’s a gamble.’

He adds: ‘You also have to take into account start-up costs and the slightly higher rates that have to be paid on a two-year agreement.

‘As a result, the benefits of such an approach may be marginal. The convenience of knowing exactly how much you’ll have to pay on your mortgage over the next five years may be a more tempting route to go.”

For those who would like a short-term fixed-rate option, Barclays has a two-year loan at 4.1 percent. This is based on a 60 per cent loan-to-value and carries a closing fee of £999.

For those with less than 10 per cent equity in their homes, Santander has a 4.81 two-year fixed rate deal with a £999 closing fee.

The International Monetary Fund forecasts that interest rates in the UK are likely to remain low this year, with the economy expected to shrink by 0.3 percent.

The Bank of England will then make a decision on interest rates in May. The current base rate is the highest in 19 years. Inflation, which stands at 10.4 percent, is expected to collapse later this year as energy prices and the cost of imported goods fall.

Some homeowners may be attracted to a two-year variable-rate deal from Nationwide Building Society, which charges 0.24 percent above the base rate — a current rate of 4.49 percent. There are no early repayment fees and the loan is available to those with at least 40 percent equity in their home. The set-up costs are € 999.

Boulger says, “As fixed-rate deals get cheaper, variable-rate mortgages are rarely more advantageous, but Nationwide’s offerings are attractive.

“Remember, firm deals will leave you fighting for another day if issues in the wider economy go wrong and interest rates skyrocket.”

Before jumping off your existing lender, Boulger says it’s worth contacting him to see if he offers competitive loan transfer rates.

This way you can close a new deal without having to pay closing costs or switch providers.