"Longer-term options are looking increasingly attractive in anticipation of the Bank of England following through with incremental rises to the base rate."
The average ten-year fixed rated mortgage at 75% LTV was 2.76% in April 2018, down from 2.78% a year earlier. In contrast, the average two-year 75% LTV fixed rate was 1.72%, up by 37 basis points from the record low of 1.35% seen in April 2017.
The narrowing price gap between ten and two-year fixed rates has also cut the difference in monthly repayments by 27% from £105 a month to £77 a month.
The rising cost of two-year fixes mean that monthly repayments would now be £616 for a £150,000 loan taken out at the last average rate, while the average monthly repayment on a ten-year product has remained stable at £693.
This falling security premium means that a small number of modest base rate rises over the next few years, coupled with a round of remortgaging costs if borrowers take a shorter-term fix, might be all that is needed for the ten-year rate to end up costing less.
Shaun Church, director of Private Finance, commented: “With small but more frequent rate rises rumoured to be on the horizon, borrowers should be cautious about growing comfortable or complacent about today’s mortgage pricing, which remains nearer to record lows for long-term loans than for short-term ones. Brexit is clearly a source of uncertainty, but the bargain-basement base rate for borrowers that we’ve come to accept as the ‘new normal’ post-2008 still seems unlikely to stick around indefinitely.
“The UK mortgage market has tended to favour a short-term fix, but longer-term options are looking increasingly attractive in anticipation of the Bank of England following through with incremental rises to the base rate. Locking in for a decade can give borrowers immunity from further rate rises hitting their monthly repayments, and allow them to benefit from today’s low pricing for up to a decade.
“In the past, the appeal of long-term fixes has been tempered by a perceived lack of flexibility and the chance that rates might fall and leave people paying more than they were switching every two years. However, with households staying put in their homes for longer and rates having little room to fall any lower than they already are, it may be time to reassess some of these concerns.”
