The right rate

By THIS IS MONEY
Updated:

 

We have been looking at 10-year fixed mortgage deals at around the 5.69% mark. Is this a good deal with regard to interest rates and the possibility of the UK joining the euro? If we join the single currency, will the Bank of England rate fall to the ECB rate? IJ, Chelmsford

James Cotton at mortgage broker London and Country says: The last few months have seen a steady rise in the Bank of England rate to its current level of 4.5% and many analysts expect further rises in the future. That said, exactly when rates will rise and by how much is something that many try to forecast, but few get right. Therefore, it is impossible to say whether or not a current fixed rate is a good deal compared to future rates, especially when you are looking as far as 10 years ahead.

One outcome that could certainly affect the Bank of England rate in the future is the UK joining Europe and at the moment, the ECB (European Central Bank) rate is lower than our Base Rate. However, this is also something that attracts a lot of speculation and despite many people thinking we would have joined already, nothing has yet transpired.

The most important thing to consider with this type of rate is the fact that you are likely to be tied in for 10 years. Would you be happy to commit yourself to one mortgage rate for the next 10 years, come what may, or would you prefer to look shorter-term and then review your situation more often? Answering this question is much more likely to result in you choosing a suitable mortgage.

The 5.69% deal you mentioned is with Britannia and although the rate is not far off some of the best five-year fixed rates, it does tie you in for twice as long - the redemption penalties are on a sliding scale starting at 13% in year 1, reducing to 2% in year 10.

It may be worth considering a deal which will let you get out without penalties at certain times, for example if rates move against you or your circumstances change. Newcastle currently has a 10-year fixed rate that gives you a redemption window every December, but of course you do pay for this with a higher rate of 5.99%.

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