Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his guidance to a reader below. If you have a question for our experts, email us at [email protected].
Question: We’re first-time buyers looking to buy a two-bedroom house for £200,000. We’ve got a deposit that covers 25 per cent of that through using our Lisas (Lifetime Isa), but will be getting a mortgage on the rest. We know that broadly we can get a better rate if we opt for a longer fix, but we’ve read that mortgage rates are coming down. So, is it best for us to get a two-year fix for now, and ride out the storm? What’s the best option?
Answer: Despite the slight uptick in the latest figures, the big picture is that inflation is falling more sharply overall than what the Bank of England and financial markets expected a few months ago.
More than 50 mortgage lenders have now cut residential rates since the start of the year and we expect to see high street lenders continue to reprice albeit with marginal reductions. The cheapest rates are for those with large deposits – of 40 per cent or more – but there have still been reductions for those with smaller deposits.
Despite five-year fixed rates currently priced cheaper than two-year fixes we are seeing many clients opting for a two-year fixed rate.
Historically five-year fixed rates tended to be a homeowner’s default option, but margins between 5 and 2-year fixed have been narrowing in recent weeks.
This, coupled with confidence that mortgage rates still have room to reduce over the next few years means choosing a two-year fix offers stability, but more importantly the opportunity to re-review options sooner rather than being tied into a higher rate over a longer period.
By the end of the year, I expect to see two-year fixes sub 4 per cent, and five-year fixes sub 3.5 per cent.
Whether you ultimately choose between a two- or five-year fix will be down to your needs and circumstances. You may consider a five-year fix as it offers you security knowing exactly how much your mortgage payments are going to be over a set period making it easier to budget.
The other consideration is how lenders assess maximum borrowing. Lenders will typically allow you to borrow more on a five-year fix than on a two-year fix due to stress tests.
I would stress to speak with a mortgage broker who will be able to discuss your options, but more importantly be able to ensure you get the best deal right up until completion.
A broker continually reviews the market, and if there is a better deal, can change the rate with the existing lender your application is with or discuss resubmitting to a new lender.
