By comparison, take-up of the typical short-term alternative, two-year fixed rate mortgages, only increased by 33% over the same period.
One residential property expert said:
"The main advantage of a long-term fixed mortgage is the peace of mind they offer to the borrower. They provide certainty on mortgage payments for the foreseeable future, and they can be less hassle too. Borrowers don’t need to hunt around for a new deal after every eighteen months, and while fees can be higher, a high one-off fee for a long-term fixed rate mortgage could be cheaper than paying three sets of re-arrangement fees for a series of two-year fixed rate mortgages over the same period."
However, a long-term fixed rate mortgage is not for everyone. Borrowers in the mortgage market need to look carefully at their own situation before deciding which type of mortgage is right for them.
Interest rates on long-term fixed rate mortgages are set at a much higher margin over the Bank of England’s base rates than shorter term alternatives. While interest rates on five-year fixed rate mortgages have only just breached the 2.5% mark, interest rates on the cheapest two-year fixed rate mortgages are under 2% and look set to be there for some time.
According to a recent report by the Office of Budget Responsibility, market expectation is for UK interest rates to rise from late 2015. Even then, the Bank of England base rate is only expected to rise to 2.1% by 2018, higher than today’s 0.5%, but still much lower than the range of 4-5.5% prevalent in the five years before the financial crisis.
Both short- and long-term fixed rate mortgages have their advantages and disadvantages on cost, so the choice often comes down to what the borrower prefers: convenience and stability, or flexibility.
Our source added:
"Long-term fixed rate mortgages might guarantee a certain level of repayments for a long time, but what they can’t guarantee is that the borrower will always be able to meet those repayments. Changes in an individual’s financial circumstances are hard to predict, so the flexibility a short-term fixed rate mortgage provides can be attractive."
