Most mortgages are lent over the medium to long term (15 - 30 years) and over that time period the cost of borrowing set by the banks and/or the Bank of England usually varies. A mortgage where the initial interest rate might have been 4 - 5% might slowly (or suddenly!) become 6 - 7 % (or more - or less). In the 1980s, mortgage rates in the UK sky rocketed into the mid teens, leaving many with huge mortgage repayments and a real headache.
As the name suggest, a ‘fixed rate mortgage’ is a mortgage that has an agreed rate of interest fixed at the start of the loan. It won’t vary in line with the Bank of England Lending Rate, LIBOR or the mortgage company’s Standard Variable Rate (SVR) for the fixed rate period.
A fixed rate mortgage offers certainty to the borrower and can be attractive to those borrowers on tight budgets or in jobs with no prospect of significant growth in salary in the foreseeable future. They are also worth considering when interest rates are historically low, although the downside is that you could pay a higher initial rate on a fixed rate mortgage than you would on a variable rate.
Most borrowers interested in a fixed rate product will take an initial fix in interest rates of between one and five years, with the loan then reverting to the lender’s SVR or a rate linked to LIBOR or the Bank of England Base Lending Rate.
It is worth noting that fixing a rate also means that if mortgage rates fall, you are still paying the original (higher) rate. For this reason some people will seek out capped rate mortgages, which will generally protect you against rate rises but still allow the rate to fall with the market.
Whatever you decide, it’s best you choose a product that best suits your needs at the time and for the foreseeable future.
For more information contact us or speak to an adviser on 01628 507477.
Related article:
Recent posts
Budgeting over the Christmas Period
4 days ago
The most wonderful time of the year can easily turn into the most expensive time of the year. Watching the pennies doesn’t mean that the Christmas festivities have to stop, following a few budgeting tips can mean you still have a special Christmas and don’t go into the new year in debt.
Preparing your home to sell in winter
8 days ago
December is usually a less desirable time to buy as many people don’t want to move over the holidays. However, prospective buyers do start to look at this time. Selling your home in winter may require a bit of extra attention to showcase your property at its best.
We look at why mortgage rates increased following the Bank of England's choice to reduce the bank rate, and should you fix now?
UK 2024 Autumn Budget: Housing
30 Oct 2024
On 30th October 2024 the Chancellor, Rachel Reeves delivered the Autumn budget which we had previously been warned would be “difficult”. Below we have summarised the main housing points.
Talking about money with kids
23 Oct 2024
In an increasingly cashless society, money is an intangible concept for children to grasp. In the days of coins and notes, kids could see money as something physical you require to purchase goods and services.
In order to help teach your children about money, we have listed some tips below;
Labour Autumn Budget Predictions: Housing
18 Oct 2024
The UK’s chancellor, Rachel Reeves will deliver the Labour government’s autumn budget at the end of the month, we take a look at what could be announced in relation to housing.
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
How can I look after my mental health?
7 Oct 2024
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!
More information
Trusted by
