It’s a common conundrum amongst borrowers – do you fix your mortgage for two years or five years?
So, it may come as a bit of a relief – if this is something you are grappling with – to discover there is another option.
The three-year fixed rate deal has come to the fore in the last few weeks because more lenders seem to be pushing them into the limelight, in amongst their assortment of price snips.
Last week first direct launched a range of new three-year fixes in response to customer demand. It is aimed at the growing number of borrowers who were reluctant to commit for five years but wanted fixed-rate options which exceeded two years.
Now Skipton Building Society has announced – along with a collection of rate reductions – a new range of three-year fixed deals, according to news agency, Newspage.
Why are three-year fixed rate deals in demand?
So, why is there such a demand for three-year mortgages?
According to Emma Jones, managing director of Whenthebanksaysno.co.uk it’s connected to interest rates.
“Three years seems to be a sweet spot for when clients believe things will be more settled in the market,” she said.
“Nobody knows, though, so anyone concerned about managing payments should consider longer-term options. On the whole, though, it’s positive to see further rate reductions. Let’s see what the rest of the week brings.”
Last week saw several more mortgage lenders cutting prices following suggestions from the Bank of England governor Andrew Bailey that interest rates had nearly hit the top of the cycle.
Yorkshire Building Society had cut its three-year fixed rates by as much as 0.41% – the biggest reductions amongst its entire range.
‘An option that sits in the middle’
Mortgage brokers have welcomed the addition of more three-year fixes to the market.
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, thought uncertainty has helped the three-year fix return ‘out of the cold’.
He said it may be difficult for people to choose between a two and five. Indeed, the shorter term option to fix for two years is attractive because people feel rates may reduce further and they will be able to benefit from this in two years’ time.
But the five-year fixes are cheaper, by comparison and this can leave many borrowers feeling torn.
“So a three-year option,” he explained, “fits in with allowing this group to have a goldilocks option that sits in the middle of these two extremes – not too short and not too long with an interest rate that also sits squarely between the other two options.”
The first direct three-year mortgage range starts 5.79% for the 3 Year Fixed Standard at 60% loan-to-value. It is available for both new and existing customers, at up to 90% LTV.
Moneyfactscompare showcased first direct’s three-year fixed rate mortgage in its latest Pick of the Week.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “The deal may appeal to borrowers looking to save on the upfront cost of their mortgage.
“A free valuation for all borrowers is part of its incentive package, with free legal fees for those remortgaging, plus the deal charges a reasonable £490 product fee. Overall, this product earns an Outstanding Moneyfacts product rating.”
