Demand for five-year fixed rate mortgages from homeowners locking in to new deals has hit another record high.
Some 42 per cent of homeowners remortgaging opted for a five-year fix last month, which compares to only nine per cent of all those remortgaging previously having a longer-term deal.
The figures from conveyancing firm Legal Marketing Services indicate a rush to five-year fixes – which would see home loan repayments locked in until the end of 2022 – driven by fears of an interest rate rise.
Rate rise: Many expect their to be a rate rise this week – and those remortgaging are heading for five-year fixes in expectation
This week, the expectation is for Bank of England to nudge the rate back to 0.5 per cent from its current record low of 0.25 per cent.
Analysts have put the chances of a rate rise being announced this week at around 70 to 80 per cent.
Mortgage rates have also recently been at rock-bottom – and many homeowners may believe they will not get the chance to secure such a low rate again.
According to LMS, whose statistics cover thousands of remortgage completion transactions each month, 56 per cent of those remortgaging now anticipate a rate rise, up from 45 per cent in August.
In September 2016, only 14 per cent believed rates would rise imminently.
It is the seventh month in a row that increasing numbers of borrowers have opted for a five-year fix, in September some 42 per cent chose one – up from 39 per cent on August.
Despite locking in for longer, the vast majority – at 83 per cent – lowered their mortgage payment rate, suggesting it is a worthwhile endeavour.
On average, the remortgage rate achieved was two per cent, up slightly on a month earlier – but down from 2.31 per cent in August 2016.
This is also likely to be skewed by the fact that people are choosing a five-year fix, which will be slightly higher than shorter term options.
Inevitably, the statistics show that the number choosing two-year fixed remortgage rates has hit 21 per cent – down 12 per cent.
Just five per cent opted for a variable rate, down from 17 per cent.
Overall, the number remortgaging rose 13 per cent in September on a monthly basis, and 32 per cent from a year earlier.
The highest average loan-to-value was 77 per cent found in the North East, down from 83 per cent in August.
This compares to 57 per cent in London and the South West.
Meanwhile, the highest average remortgage loan amount was in London – £278,107. But this fell by nearly £11,000 from August.
Should you fix for five years?
Many are being tempted by the lure of the stability that a five year fix brings – and there have been noises for months that record low mortgage rates may soon start nudging higher.
However, it is essential that borrowers know what they are signing up for by taking out a mortgage for five years. The best deals will be portable and able to be taken to a new home, but the lender will want to assess the property and may not approve the move.
Almost all will charge a penalty if you need to leave the deal early.
Additionally, two year fixed rates are also low – and there is no guarantee that interest rates will rise much, if at all, in the next two years.
On the flipside, two years passes quickly and you will soon find yourself remortgaging again and potentially paying big fees.
Tips for getting a new mortgage from brokers
David Hollingworth of London and Country Mortgages said: It’s been clear for some time now that the majority of borrowers have been opting to fix their mortgage rate.
‘In our experience something in the region of 90 per cent or more of borrowers have been fixing their mortgage.
‘That is no doubt driven by the ultra-competitive fixed rates on offer recently meaning that variable rates have offered little or no advantage in terms of rate, especially as base rate is already at a record low.
‘The speculation about a forthcoming base rate rise is only likely to underline that behaviour.
‘With so many are keen on fixing, the main decision is therefore how long to lock in for.
‘Given the ongoing uncertainty, not only around interest rate rises but also the ongoing Brexit negotiations and the backdrop of rising household costs it’s perhaps not a surprise to see more people consider the benefits of fixing for longer.
‘Some will still be attracted to shorter term deals and two year fixed rates continue to offer lower interest rates but locking in at the low for longer is bound to attract a bigger proportion of borrowers.
‘It’s possible to fix your mortgage for up to 10 years and rates start from as low as 2.34 per cent.
‘However most 10 year fixed rates carry early repayment charges throughout the fixed rate period and can therefore limit flexibility in the future despite the long term security that they offer.
‘As a result the five year market tends to be more popular, giving the balance of rate and lock-in that more feel comfortable with.
‘We’ve certainly seen five year rate take up on the increase showing that borrowers are thinking longer term and understand that they have a great opportunity to not only make savings over the variable rate but also to take advantage of the great rates on offer, whilst they last.
‘Sainsbury’s Bank currently offers a five year fix through brokers at 1.68 per cent to 60 per cent LTV with a £745 fee and free valuation and free legal work for remortgages.’
Alastair McKee, director of independent mortgage broker, One 77 Mortgages, said: ‘Borrowers have been very savvy over the past year or so, locking into fixed rates as a way to protect themselves when rates finally do begin the long ascent upwards.
‘Despite the fact that they’re more expensive than their two-year counterparts, five-year fixes have become increasingly popular as they provide even greater protection.
‘There’s a growing sense among buyers and homeowners that the great interest rate party is coming to an end.
‘When interest rates do start to rise, the key is that they go up slowly and in small amounts, so that people on variable rates do not come unstuck.
‘If rates are raised at the right pace then there is no reason to think the market will collapse, but the pressure on Threadneedle Street to get this right is immense.’
‘Some of the top five year mortgage deals include the Sainsbury’s Bank mentioned above – but that is only available through brokers.
‘First Direct has a 1.74 per cent rate with a 60 per cent loan-to-value and 2.45 per cent from Atom Bank with a 90 per cent LTV.
‘The best two-year deal with a 40 per cent deposit is from Monmouthshire Building Society at 1.33 per cent and for 10 per cent, Yorkshire Building Society at 1.89 per cent.
‘Some may even be tempted in by a bumper 10 year rate. For example, with a 40 per cent deposit, homeowners can get a 2.34 per cent with TSB locked in until 2027.’
