Are fixed rates good and how long should I Fix for?
The last quarter of 2022 caused concern to many of us with inflation rates rising to over 10% and the Bank of England (BoE) Base Rate increase to 3.5% from unprecedented lows of 0.1% previously.
The last time we saw interest rates at over 3% was back in October 2008 where the rates dropped sharply, following the financial and mortgage crash of 2007. Interest rates have risen sharply in 2022 with an increase in almost every Bank of England review by the Monetary Policy Committee (MPC).
Interest rates and remortgaging in 2023
There is no doubt that 2022 has seen some unprecedented changes to the UK economy, chiefly of which has been huge increases to the inflation rate, and consistent rises to the BoE Base Rate.
We can clearly see from this chart that the rate of inflation in the UK has risen consistently and sharply since the beginning of 2021.
The Bank of England Base Rate shows a very similar upwards trend since around December 2021 where the rate was at a record low of 0.1%. Since then, the BoE Base Rate has consistently increased month on month to its current rate of 3.5% as at December 2022.
There is no doubt that we are in a period where the levels we have been experiencing over the past 15 years will increase. It is likely that rates will continue to rise slightly for a short period, and then most economists are predicting that they will settle for a number of years after that.
It is likely that we will now see a period of normalisation between 3% and 5% based on some economists predictions.
Are interest rates going to go down? (2023 predictions)
Most economists are predicting that interest rates will remain at a similar rate to what they are now, or may even still increase by a further 1% to around 4.5%.
It is likely that mortgage rates will also increase again in the short term up to the middle or end of 2023. After rates have hit the peak at around the middle or last quarter of 2023, it is likely that we may see a slow and steady decline of around 1%, back down to around 3.5%.
We also know that prior to 2007, our historical data shows that interest rates sat at around 5% on average.
Should I get a free mortgage review?
Getting a mortgage review can save you money and help with budgeting if you are able to fix your mortgage deal. You are free to do whatever you like with your mortgage, however, there are clearly better times to remortgage your home.
A qualified mortgage advisor will be able to tell you what you should do based on your mortgage deal, financial circumstances, and your financial goals. We work with one of the UK’s leading mortgage experts and they are well placed to tell you which options are best for you and your family.
Some of the main considerations when reviewing your mortgage:
- Are you in a special rate period?
- Do you have any Early Repayment Charges?
- Is your credit score good or bad?
- What is your current income?
- Have you changed jobs or employment recently?
- Do you have any other credit?
How to get your free mortgage review
You can speak to a qualified mortgage expert to review your mortgage free of charge. An independent advisor will be able to assess all aspects of you mortgage to see if you could benefit from remortgaging your home.
Fixed rate mortgages
You might already have a fixed rate mortgage which may be coming to an end, or it may have already ended. Alternatively, you might have a discounted or variable rate mortgage which is likely to have increased several times recently.
A fixed rate mortgage is a type of mortgage where the interest rate remains the same for a period of time, usually with a 2 to 5 year fixed period. Most borrowers who are borrowing towards the top of their budgets should ideally have this type of mortgage.
One of the main points to remember about a fixed rate mortgage is that your deal will come to an end, and you should make sure that you know when that is.
A fixed rate mortgage is the best type of mortgage for budgeting because your mortgage payments won’t change during the fixed rate period. This means that you know exactly how much your mortgage repayment is every month and can budget for that amount.
Note: Review your mortgage 6 months before the deal ends (most borrowers don’t know that you can do this).
If your fixed rate is ending in the next six months then you should speak to a qualified mortgage expert to see what your options are. Fixed rates are also very likely to be higher than your previous deal, especially for anyone who took out a fixed rate in the past 5 to 10 years.
A discount mortgage might seem like a bit of a strange term for a loan that is secured against your property.
Ultimately, this is just a type of mortgage deal where the lender is offering a rate that is discounted from their Standard Variable Rate (SVR). The discounts are usually somewhere between 1% and 3% depending on the Loan to Value (LTV), the length of the discounted period and any other incentives that are included (e.g. cashback, free valuations, free legals etc.).
Most discount rates will usually last for a similar period to fixed rates, which is between 2 and 5 years. This also usually means that you’ll be tied in for this period with an Early Repayment Charge if you satisfy your mortgage early.
Note: You can review your mortgage up to 6 months before the end of your mortgage deal and secure a new rate.
It is usually worth reviewing your discount mortgage deal six months before the deal end date to secure a new deal. You can save yourself money and you might want to consider moving to a fixed rate mortgage deal for your next loan.
Why should I fix my mortgage?
There are many reasons why you should consider fixing your mortgage rate, and especially where there is so much uncertainty in the wider economy.
The simple answer to ‘why should I fix my mortgage?’, is that you will at least know that your monthly payments will remain the same for the fixed rate period. Initially your fixed mortgage rate might be slightly higher than discount or tracker rates, but these are higher risk deals because they can change.
By moving to a new fixed rate deal or transferring to another fixed rate deal, you give yourself some security for budgeting purposes. This is a great way to remove any anxiety around mortgage rates, especially for people who are on a tighter budget.
If mortgage rates increase by even a small amount, this can have a significant impact on your outgoings every month. For example, if mortgage rates continue to rise to the projected levels of 4.6% from the current BoE Base Rate of 3.5%, mortgage repayments will increase by £50 for every £100,000 borrowed on a typical 25 year mortgage.
When is best to fix my mortgage?
Interest rates have risen sharply over the past 12 months and are likely to continue to increase for the next 6 to 12 months.
Now is quite possibly the most difficult time to remortgage for many years, but this is not likely to change in the near future. There is still a significant amount of uncertainty surrounding interest rates, due to a volatile economy and other global factors. If you are able to secure a fixed rate mortgage that you are comfortable with, then that might be a good option for you.
How long should I fix my mortgage for?
There are a few things to think about when you consider which length of fixed rate is best for you and your family.
It can be confusing to know which is best and especially at the moment where the rates are fluctuating regularly. Previously, you could have taken out a very long fixed rate mortgage deal for 10 years or even longer. These deals have now gone or have increased significantly compared to what lenders were offering before rates increased in 2021.
There are numerous fixed rate periods from 2 years up to as much as 40 years with some specialist lenders. It’s not always best to fix your mortgage for a longer term because you may be tied in with Early Repayment Charges in these periods.
Some of the main things to think about for fixed rate periods are:
- Will I be moving home in the fixed rate period?
- Do I want to repay some or all of my mortgage in the fixed period?
- Is it likely that I will need to borrow more money during the fixed rate?
- Will my circumstances change in the fixed rate period?
Some of these questions can be difficult to answer because we don’t always have a crystal ball, and our circumstances might change unexpectedly.
How to find the best fixed rate mortgage deals
There are several routes for you to choose from when reviewing your mortgage deals and rates on your home. The best options are usually to speak to a qualified mortgage expert to get the right advice.
The main difference between some mortgage brokers and lenders is the amount of deals that they have available to them, so it is important to take the time to choose the right broker for you.