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.

PROMOTED VIDEO
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
Sport
football
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
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

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us