Borrowers fix for longer following rate rise

Longer term 5 and 10-year fixed rate mortgages are becoming increasingly popular, as borrowers seek to protect themselves from further interest rate rises. The Bank of England raised the base rate from 0.5% to 0.75% last month, prompting many homeowners to review their mortgages and lock into longer term fixed rate deals before rates increase again. Yorkshire Building Society, for example, reports that it has seen a 13% rise in the number of borrowers applying for five-year fixed rate mortgages since August. Janice Barber, mortgage manager at Yorkshire Building Society, said: “The demand for longer-term fixes suggests mortgage holders expect interest rates to continue rising, and that by reviewing their accounts now believe they may be able to get a better deal while rates are low.”Why choose a longer-term fix?Although no-one knows for certain when the next interest rate rise will happen, they are predicted to rise further at some point. Locking into a longer-term fixed rate mortgage deal can provide valuable peace of mind that when the next increase does happen, your monthly payments won’t change. The margin between 5 and 10-year fixed rates compared to shorter term 2 and 3-year deals has narrowed considerably in recent years, which means its often not much more expensive to lock in for longer. Another benefit of longer term fixes is that you won’t have to pay arrangement fees as often as you would if you opt for shorter-term deals. Some mortgage arrangement fees can run into hundreds of pounds, so if you remortgage regularly, costs can soon mount up. If you’re thinking about locking into a 5 or 10-year fixed rate deal, bear in mind that while rates are currently very competitive, the best deals won’t hang around forever. That means if you’ve spotted one you like, it may pay to act sooner rather than later.Things to consider firstBefore locking into a longer-term fix, make sure you read the small print carefully, so you understand exactly what you’re signing up for. Some 5 and 10-year fixed rate deals carry hefty early redemption charges, so if you want to leave your deal mid-term, it could end up costing you thousands of pounds. Most fixed rate deals are portable, however, so you can move them across to a new property if you decide to move during the mortgage term. Bear in mind though that you will have to effectively re-apply for your mortgage if you want to transfer it, and there are no guarantees you will meet your lender’s criteria at that point. Finally, remember that although it appears that we’re unlikely to see a cut in interest rates any time soon, if you choose a longer-term fix and rates do go down, you won’t benefit from lower repayments. Seek professional advice if you’re not sure which fixed rate deal might be best for you.