To protect against further interest rate rises, the majority of homeowners have gone for 5-year fixed rate mortgages in May according to the latest figures from conveyancing firm LMS.
We have already seen interest rates rise from 0.1% in December 2021 to 1.25% in May 2022, and some experts are suggesting that this may rise up to 3% by the end of the year.
5-year fixed deals represented 65% of all mortgages in May, up 10 % from April. 25% of mortgages in May were 2-year fixed, 5% went for 10-year fixed deals and the balance chose tracker mortgages.
Apart from the threat of further interest rate increases, many 5-year fixed mortgages are cheaper than 2-year fixed deals, so it’s not surprising in such a big shift.
Most homeowners on 5-year fixed are assuming that interest rates are only going to go one way for the foreseeable future. But the risk is that if interest rates go down, then unless the homeowner pays Early Repayment Charge (ERC) , they will be paying more for their mortgage.
Alison Mitchell, advisor at RobMac responsible for mortgage management said:
“This shows the shift in attitude that many clients have at the present time. They are concerned that rates won’t stop going up and so want to make sure they protect themselves against any short term future increase.
We need to remember though that back in June 2019 rates for both 2 and 5 years were not far off what we are seeing today, so other considerations need to be looked at when deciding on the fixed term.
Taking a five-year deal may not impact on your monthly outgoings too much but if, as the Bank of England predict, interest rates continue to rise, then you could save considerable interest in the longer term.
The flip side here though is if you need to change your mortgage, borrow more or you move house before the end of the term, there could be expensive early repayment charges.”
If any of the above is of interest to you and you would like to discuss your mortgage further, you can arrange to meet online with one of our financial advisers by scheduling an online meeting here >>
