Get yourself in a fix

By TONY HAZELL FOR THE DAILY MAIL
Updated:

 

RISING interest rates are creating a surge in demand for longer-term fixed-rate mortgages, lenders claim.

Four rate increases since November, pushing variable mortgage rates to around 6.5%, have focused minds on the dangers of spiralling repayments.

Repayments on a £100,000 25-year mortgage have already risen by £61 a month. But some economists are now predicting bank base rates could reach 6% by next summer, which could put variable mortgage rates at 8% - a full 2.5 points higher than last autumn.

If this happens, repayments on a £100,000 25-year loan would increase to £771.81 a month - a total rise of £157 a month or £1,892 a year.

Against this, ten-year fixed rates of less than 6% suddenly look cheap. The best deals include Britannia at 5.69% and Norwich & Peterborough, Standard Life and Derbyshire, all at 5.79%.

Britannia's deal means repayments are fixed at £631 a month on a 25-year £100,000 mortgage.

But are borrowers fixing at the wrong point in the interest rate cycle? Last year, Britannia was offering a two-year fixed rate at just 3.29%. And with interest rates expected to peak next year, cheaper deals are likely to appear long before these fixes end.

Add to that the fearsome penalties - in some cases a year's interest - for getting out and you have to be sure a 10-year fix is what you want.

Jane Harrison of broker London & Country says: 'People are a bit fixed-rate obsessed. I think it could turn out to be misguided. Fixing for that long takes away your flexibility, particularly if you move house and need a bigger mortgage.'

Some deals are more flexible than others. Leeds & Holbeck's 10-year deal at 5.99% allows overpayments of up to 10% of the mortgage each year - but you are tied into it for the whole 10 years.

Its 15, 20 and 25-year deals at the same rate don't allow such large overpayments, but do offer a penalty-free bolt-hole after five years.

The big point in favour of the 10-year fixes is the absolute certainty they give over repayments - and you don't need to go to the sometimes considerable cost of remortgaging every couple of years. This can be especially attractive to borrowers when the end of their mortgage is in sight.

Britannia spokesman David Ginivan says: 'The number of people taking tenyear fixes has picked up. It is mainly more mature borrowers remortgaging.'

Other lenders such as Norwich and Peterborough have also seen the number of people applying for 10-year fixes increase, though it is not clear how much of the increase is simply because more people are applying for mortgages in general.

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If you want a shorter period offer, then keep your fingers crossed the economists have got it right and that interest rates don't remain too high for too long.

Among the more attractive deals is the two-year cap and discount from Giraffe, part of Bristol & West.

This offers a 1.4-point discount, so you'd start off paying 4.89%, but the cap means the rate won't go above 5.25% over the two years.

Alternatively, straight two-year fixes start at 4.99% from Britannia, with a £299 fee.

Both Giraffe and Britannia charge a penalty if you want to get out during the period of the deal.

•RICHARD and Rosemary Carter (pictured with their two daughters, Janelle, four, and Cayla, three) have fixed their mortgage for 10 years - and this will be the last deal they have to take. They have a £76,000 mortgage and aim to pay it all off during the 10 years by making occasional over-payments.

The Carters, from Feckenham, Worcestershire, fixed their loan at 5.45% with Britannia (it has now been replaced with a 5.69% deal) which will mean monthly repayments of £401.

Mr Carter, 52, says: 'With interest rates on their way up, we need a bit of security, and the time it takes to remortgage every few years coupled with the arrangement fees pushed us just to take out a long-term fix for the rest of the mortgage.'

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