Time could be on your side

With short-term fixed rates on the rise, deals for the longer term now look attractive

In the past few weeks, the gap between short- and longer-term fixed-rate mortgages has narrowed. Lenders have been putting rates up, with the cost of two-year fixed-rate mortgages going up most of all. As a result, longer-term mortgage deals are starting to look more attractive.

Abbey, for example, has increased its two-year fixed-rate from 4.45 per cent to 4.59 per cent. Alliance & Leicester has increased the rate on its popular "fee-saver" two-year fixed-rate to 5.09 per cent. Portman has put up the interest rate on its two-year fixed-rate to 4.35 per cent.

There are still a handful of attractive two-year fixed rates on offer, but deals close to 4 per cent come with high fees or other restrictions. John Charcol, the broker, has an exclusive mortgage deal at 3.99 per cent. The snag is that the minimum loan is £500,000.

The cheapest five-year mortgage rates have remained stable. The lowest widely available five-year fixed-rate is 4.69 per cent, by Nationwide or Portman.

This leaves a narrow gap between the best two-year rates, such as Halifax's 4.39 per cent and Portman's 4.35 per cent, and a 4.69 per cent five-year fixed-rate. And rising arrangement and exit fees are making short-term fixed-rate deals less attractive to buyers.

The cost of switching between lenders is significantly higher than it was two or three years ago. For homeowners who have grown used to remortgaging every couple of years, in order to pick the best rates on the market, the new charges might come as a shock.

"Fees are a much bigger issue," says David Hollingworth, the director at brokers London & Country Mortgages. "People chopped and changed [mortgages] because they could do so at relatively little cost. But now the arrangement fees and, in particular, exit fees have increased, it becomes paramount to take these into consideration." Booking and exit fees can easily bring the cost of remortgaging to between £750 and £1,000, before legal or other costs are added on.

This, combined with the smaller difference between short- and longer-term interest rates, might prompt homeowners to look for long-term value rather than chasing the cheapest short-term deals.

Drew Wotherspoon, a spokesman for John Charcol, says that the average mortgage now lasts for four years. But it is impossible to say whether this is because borrowers are happy to switch that often, or because the longer-term rates that were on offer a few years ago were not attractive, set against a two- or three-year fixed-rate deal.

But changes in the long-term interest rates offered to lenders by the City, and changes in the mortgage market itself, have provided some more interesting options for longer-term home-loan deals. The Government's Miles Report into the housing market called for a move towards longer-term fixed-rate deals. Lenders have responded with better mortgage deals on offer for 10 years and a handful of options for buyers who want to fix for the entire life of their loan.

Woolwich has just increased the interest rate on its 10-year fixed-rate deal from 4.69 per cent to 4.89 per cent, but it remains an attractive option for a homeowner wanting security in the medium to long term.

Kent Reliance Building Society has a 25-year fixed-rate mortgage at 4.98 per cent. Cheshire Building Society has increased the interest rate on its 25-year fixed-rate from 4.99 per cent to 5.33 per cent, although the deal retains some useful options, such as the ability to pay off the loan without early repayment charges in every other year, after the first five years.

But take-up from buyers for longer-term fixed rates remains low. Some home-buyers believe that rates have further to fall; some recall the costly and inflexible fixed-rate mortgages of the mid-Nineties; others just want the cheapest rate on offer. For now, despite the narrowing gap, that remains a two-year fixed-rate.

Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
people
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
News
news
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
Sport
football
News
i100
News
Perry says: 'Psychiatrists give help because they need help. You would not be working in mental health if you didn't have a curiosity about how the mind works.'
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003
    Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

    Our woman in Beijing builds a new relationship

    Britain's first female ambassador to China intends to forge strong links with growing economic power
    Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

    Courage is rare. True humility is even rarer

    Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
    Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

    Alexander McQueen's astonishing vision

    Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
    New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

    Dinner through the decades

    A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
    Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

    Philippa Perry interview

    The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
    Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

    Bill Granger's Indonesian stir-fry recipes

    Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
    Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

    Harry Kane interview

    The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
    The Last Word: For the good of the game: why on earth don’t we leave Fifa?

    Michael Calvin's Last Word

    For the good of the game: why on earth don’t we leave Fifa?
    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?