Why fixed rates are always in fashion

Updated: 
For sale signsMany folk expect interest rates to stay low for years to come, but that doesn't mean tracker rate mortgages are the best bet for everyone.

The Bank of England's base rate has been at its record low of 0.5% for longer than most imagined possible.

After three and a quarter years at this historic low, some economists believe there is a chance the rate could be cut further.

Christine Lagarde, managing director of the International Monetary Fund, recently urged the Bank of England to cut rates further and the financial markets have also priced in a rate cut to 0.25% by the end of this year.

Many economists now expect that the first rise in the base rate won't come until 2016 at the earliest.


If they're right, this means that low tracker rate mortgages make sound financial sense. They are currently much cheaper than their equivalent fixed rates after all, which means your monthly repayments will be lower. Plus if the base rate doesn't rise from 0.5%, your repayments will remain low.

In that context, it's understandable that many borrowers are concluding that paying a premium to fix your rate doesn't' seem like a particularly savvy move. And there have been articles across the media elucidating this in current weeks, including Is now the time to get a tracker rate?

But let's hang on a minute!

No guarantees
There are a lot of ifs in the above scenario. Economists have been wrong before and they'll be wrong again at some point. Nobody knows for sure what will happen in the next few months, let alone the next few years.

But one certainty is that if you want to be 100% sure that your monthly repayments won't change for an agreed period, you need to fix your rate.

That's why fixed rates will always be popular, no matter what the so-called experts predict will happen to mortgage rates.

Long-term safety
Long-term fixed deals in particular are currently very good value for those who want payment security for the coming five years or more at a competitive rate of interest.

Last week Skipton Building Society launched four stonking long-term fixed rates that will appeal to borrowers who simply want to stop worrying about what the Bank of England may or may not do with its base rate!

The first is a 7-year fixed rate available up to 75% LTV at a rate of 3.99% and up to 85% LTV at 4.89%.

Two 10-year deals are also available, at a rate of 4.49% for mortgages up to 75% LTV and 4.99% up to 85% LTV.

All four products have an arrangement fee of £995 and revert to the Bank of England's base rate plus 4.45% upon completion (currently 4.95%).

These deals are competitive and the society says they enable borrowers to 'insure' themselves against any potential rate increases in future.

Skipton explained that it seized the opportunity to take advantage of extremely low swap rates in order to provide these long-term products, which are targeted at borrowers whose priority is having certainty over their monthly mortgage payments for the longer term.

Any drawbacks?
Of course, you do pay a premium for the long-term security offered by these deals. So they're not really suitable if you simply want the lowest possible rate.

But if you want a long-term good value mortgage, then a five to 10-year fixed rate is certainly worth looking at.

One thing to consider with any long-term fix is that they usually come with steep penalties if you want to switch or repay your mortgage early.

In the case of the Skipton 10-year deals, for example, you will be subject to an Early Repayment Charge that reduces on a sliding scale over the 10 years, from 6% of the outstanding balance in year one to 2% in the final year.

In other words, they are a long-term commitment and you should also check if any long-term fixed rate is portable if you think you will move house during the fixed period.

If you are comfortable with both of those things, a long-term fixed rate is definitely worth considering. And below are some of the best on the market right now.

Five-year fixes

LENDER

TYPE OF DEAL

RATE

FEE

MAX LTV

Nottingham BS

5-year fix

3.69%

£1,499

75%

Monmouthshire BS

5-year fix

3.75%

£195

60%

Yorkshire Bank

5-year fix

3.79%

Fee-free

65%

Northern Rock

5-year fix

3.79%

£1,094

70%

Cumberland BS

5-year fix

3.84%

£299

60%

Cumberland BS

5-year fix

3.96%

£299

75%

Monmouthshire BS

5-year fix

3.99%

£195

80%

Norwich & Peterborough BS

5-year fix

4.69%

£295

85%

First Direct

5-year fix

4.99%

Fee-free

90%

Leeds BS

5-year fix

5.99%

£999

95%


Long-term fixes

LENDER

TYPE OF DEAL

RATE

FEE

MAX LTV

Skipton BS

7-year fix

3.99%

£995

75%

Chelsea BS

5, 6 or 7-year fix*

4.54%

£395

70%

Skipton BS

10-year fix

4.49%

£995

75%

Leeds BS

10-year fix

4.58%

£999

75%

Leeds BS

10-year fix

4.79%

£999

80%

Skipton BS

7-year fix

4.89%

£995

85%

The Coop Bank

10-year fix

4.99%

£999

75%

Skipton BS

10-year fix

4.99%

£995

85%

Chelsea BS

5, 6 or 7-year fix*

5.04%

£395

85%

Chelsea BS

5, 6 or 7-year fix*

5.64%

£395

90%

The Coop Bank

10-year fix

5.19%

Fee-free

75%

*Borrower chooses which fixed term they prefer, from 5, 6 or 7 years

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