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When interest rates rise, the most competitive mortgage products change. In the recent past, short-term fixed rates tended to be the cheapest products available when base rates were on a downward trend, and longer-term fixed rates (five and ten years) were less desirable. Long term fixed rates typically offered less flexibility, were usually more expensive than short-term equivalents, and borrowers could end up in a scenario where their rate was significantly higher than the best rates on the market.
However, as base rates rise, the inverse happens, and longer-term fixed rates are typically much more competitive. This is partly due to lenders offering cheaper, longer-term fixed rates and because these products provide more certainty to borrowers over the long term. Most borrowers are now opting for five- and ten-year fixed mortgages, which gives clarity on what borrowers will pay well into the future.
Regarding long-term fixed rates, there is naturally a toss-up regarding flexibility as borrowers opt to commit to a specific rate for several years. However, given current inflation levels and uncertainty about the possibility of a recession/global slowdown in growth, it is fair to assume base rates will continue to rise. This means long term fixed rates will give more cash flow certainty (which is especially useful as the cost-of-living increases) and will likely remain competitive for some time.
Here are five things you should know about longer term fixed rate mortgages.
If you want to refinance or take out a longer-term fixed-rate mortgage, it’s essential to be realistic about what are now the best rates available. The low rates of 2020 and 2021 are something of the past, and rates are now higher across the board, especially as central banks look to battle inflation. Seeking the rates on offer in 2020 is unrealistic, and while some excellent deals are available, the historic lows of the past couple of years are now firmly off the table.
If you’re considering securing a fixed rate, it is more beneficial to think about ‘now versus the future’ rather than ‘now versus the past.’ Certainly, today’s rates are higher than the historic lows we saw in 2020. But fast-forward a year or so, and today’s rates may be very attractive compared to the rates on offer by mid-2023. If you want to refinance or take out a mortgage, the best time to do so is now. You may also be in a stronger financial position today than you will be in the future, which is also something to factor in.
The current long term fixed mortgage rates on offer are hugely dependent on LTV. The more you want to borrow, the higher your rate is likely to be. However, five- and ten-year fixed rates are undeniably more competitive than short-term fixed rates.
Every offer we secure will depend on the strength of your financial position, net worth, assets and liquidity. However, as an example, the best rates currently available on the market are:
For higher LTV mortgages (based on borrowing £1 million or more with 95% LTV, for example), rates can sit at about 5.04% for a five-year fixed mortgage and 4.84% for a ten-year fixed mortgage. The lower the LTV, the lower the rate is likely to be.
Whatever happens in the markets and to the economy, lenders want to lend, and they want to do business. Arguably, lenders have to be more competitive in interest rate rising environments because mortgage volumes can fall overall, and many other lenders in the market have similar products they need to compete with for less business.
This means that the best borrowers will still have ample choice of lenders, and in other corners of the market, some lenders have even started to reduce their margins to attract more borrowers. In other words – there is everything to play for and some excellent five- and ten-year fixed rates available.
Competition between players is always something you can take advantage of, but especially so now. The best way to do this is to use a broker to access as many lenders as possible to get the best idea of what is on offer and which lenders will deliver what you need.
There has been a considerable focus over the last few months on refinancing, but what if you’re buying property and want a mortgage? Here, the goal is simple: we recommend securing your mortgage offer as early as possible.
Mortgage offers are usually available for six months from the date that you receive the complete offer. Timing here is everything; it is worth being proactive and thinking ahead to get in front of rate increases. If you can get your timing right, you can now secure a rate that will be available to use in 8 or 9 months.
We aren’t only here to secure the best mortgage rate for you but also to see the transaction through to completion as quickly as possible - including getting you an offer locked in. We can help you work out timelines, get things completed quickly, or time the whole transaction to your advantage. The stronger your financial situation, the faster we can arrange a mortgage – we can even secure offers from high-street banks in as little as 2-3 weeks, provided we have everything we need to do so. We can walk you through your steps and determine what you need to deliver to benefit from the fastest available finance.
Currently, longer-term fixed rates are more competitive than short-term fixed products. This drives many people to refinance or secure longer-term fixed products as they buy property. Given it looks like interest rates will continue to rise, this is likely to be a good strategy.
That said, switching to a fixed-rate mortgage doesn’t mean you have to stay with the product forever if you can get a better finance package by negotiating a new deal with another lender in the future, or if rates base fall again. Breaking a mortgage or refinancing always needs to be considered carefully, as there are costs associated with this. Still, if a different product is cheaper and fits your plans in the future, you can refinance or switch products, so a longer-term fixed rate can still be changed, if it is to your advantage to do so.