QT panel gasp at audience member's mortgage interest rate offer
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Traditionally, a two-year fixed rate deal has been the norm however the cost of living crisis and the financial uncertainty that it has brought has caused a shift to people considering long-term fixes as a way of shielding their finances. Of those remortgaging only to a long-term fix, around 86 percent would choose a long-term fix between five and ten years. Joseph Seager, a personal finance blogger on his site Thriftychap from Harrogate, recently signed up for a seven-year deal, as a way to offer him a level of “security” as the financial markets wobble.
Mr Seager’s five-year fixed rate mortgage came to an end in May of this year and at this time the Bank of England (BoE) increased the base interest rate to one percent.
With both him and his wife being self-employed, Mr Seager did not believe they would be able to get a mortgage with another company so felt they had to stay with who they were with.
He said: “We’ve been here for the last seven years and I expect we will stay here for the foreseeable and I looked at the two and three-year deals they were offering but as soon as a saw the seven-year, which was £1 less than what we were paying on our mortgage with the five years, I felt like I should sign up.”
Mr Seager explained he had been hit by major financial changes before as during the COVID-19 pandemic he lost all of his clients overnight which did impact his finances.
He added: “The driving factor to locking into a seven-year deal was definitely the security, any sort of long-term form of security against massive changes which could impact me and my family is definitely a good thing.”
Mr Seager explained that by simply knowing exactly what he was paying every month, he “could work around everything else” to make sure he had the money for the mortgage. He added that having a “constant” is the better option for him.
Working within the personal finance sector, Mr Seager was aware of the uncertainty which had begun during the time when he was remortgaging and knew that before the looming “chaos” he had to “lock something in”.
He said: “I always keep an eye on everything that’s going on interest rate wise and I knew it was all gonna go up and it wasn’t likely to come down again so I knew I needed to get something sorted. “
Mr Seager believes he has dodged a bullet due to the current state of UK mortgages at the moment and says that he can only hope that the UK’s finances become more settled after seven years. However, if the option was available to him, he would’ve signed up for a longer deal.
He added: “If I was having to sort something out now, I would definitely consider locking in for ten years if it was put on the table, even if it was slightly more expensive. I’d probably go for it.”
Alex Hasty, director at Comparethemarket said the “upwards trend” in the popularity of fixed-rate mortgages looks set to continue with the Bank of England (BoE) looking set to increase its base interest rate to nearly six percent next year.
He said: “Long-term fixed-rate mortgages offer certainty of repayments for a much longer period than short-term fixes and can protect against any further interest rate rises.
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“It’s recommended to also speak to a mortgage broker if you are considering a long-term fixed rate to ensure it is suited to your individual circumstances.”
Mortgages have been the centre of attention over the last week after the Bank of England’s six percent interest warning on Monday.
Moneyfacts, a financial information service, said 935 mortgage products, around a quarter of the total, were taken off the shelf.
The financial service website said the fall in mortgage products on offer was the biggest daily drop it has ever recorded. It was double the previous biggest drop, which occurred at the height of the COVID-19 pandemic.
As of writing, just over 2,500 mortgage products are still available however, that is half the number that were on sale at the start of December last year when interest rates started to rise.
Mortgage Brokers are reassuring those who already have a mortgage, or an agreement for a new mortgage, that they will be unaffected for the time being.
However, when they come to remortgage, they will likely find their monthly repayments have become a lot more expensive.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The mortgage market has seen relentless rate rises this year, and borrowers coming off a fixed mortgage will find the cost to secure a new deal is much higher than they were perhaps anticipating.
“This could not come at a worse time amid a cost of living crisis when household budgets are stretched.
“However, failing to fix and falling onto a standard variable rate (SVR) is unwise, as the average rate has risen to its highest level in over a decade. Fixing for the longer-term may then be desirable, but it is unknown if interest rates will settle, and borrowers find themselves locked into a higher rate compared to new deals surfacing.
“Choosing the right deal is crucial and seeking advice to navigate the mortgage maze is wise.”
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