A turbulent and uncertain mortgage market
With consecutive interest rate rises over the past 18 months, the decision between fixed and variable rate mortgages is no longer as clear cut as it once was. For many, the certainty of fixed monthly payments that a fixed rate mortgage offers is still a priority.
The changing landscape of fixed rate mortgages
But for some the certainty of fixed monthly payments is being undermined and eroded by interest rate uncertainty. This is causing more and more people to worry that if they fix for 2, 3 or 5 years, and rates drop during this time they will be left paying their mortgage at a higher rate, with significant early repayment charges for ending the deal early. The comparable costs of 2, 3 and 5 year rates have also shifted, with 5 year rates now tending to be lower than 2 or 3 year rates. This means that those considering opting for a shorter-term fixed mortgage, in the hope that rates will be lower in 2 or 3 years’ time, will find this a more expensive solution in the short term.
Why some people are choosing to roll onto their lenders’ Standard Variable Rate (SVR)
This uncertainty has meant that some people are now choosing to go onto their lender’s standard variable rate when their mortgage term comes to an end and wait for rates to fall. The are positives and negatives with rolling onto the standard variable rate. One of the positives is that you are not subject to early repayment charges and a negative is that it can be expensive, especially for those coming off low fixed rates, this can represent a significant uplift in their monthly outgoings. The advantage in this scenario is flexibility, and the ability to fix later on if rates reduce, but it comes at a price in the short term, with no guaranteed date at which rates will reduce. Before rolling onto to your lender’s variable rate, it is best to seek independent advice to see if this is the best option for you and your circumstances.
What can a variable rate mortgage offer?
There is however another option for those willing to forgo the certainty offered by a fixed rate, which is a variable mortgage product. Variable rates are most commonly available for 2 years and tend to track the Bank of England base rate, so can go up or down as the base rate changes. The biggest advantage of a variable rate mortgage is that these have low or no early repayment charges, which makes switching to a better rate easier if this becomes available, or if you decide that you would prefer the certainty that a fixed rate offers. Variable rate mortgages also provide homeowners with the opportunity for lump sum repayments over the usual 10% threshold with little or no penalty. With this option, borrowers can achieve the flexibility of a variable rate, but usually at a lower rate than the standard variable. If you are considering this approach, it is important to be aware that your monthly payments can increase, and you need to ensure this is affordable. If you are hoping to jump from a flexible variable rate onto a fixed rate if rates reduce, then you also need to factor in the costs of re-mortgaging twice within a shorter time frame, plus the potential impact that two applications could have on your credit score.
How we can help
Our experienced planners can help you understand the different options available and compare costs of a standard variable rate, variable rate or fixed rate mortgages. Contact us today to arrange an initial consultation.
Starting with a free phone or video consultation, you will have a dedicated planner who will meet you to understand your situation. They will determine what your requirements are, how much you can borrow and then search the market for a solution to fit your needs.
Contact us for a free, no obligation consultation to discuss your initial enquiry by calling 0330 441 2244, completing our enquiry form or email [email protected]