Brexit is just around the corner and while it is impossible to predict exactly what will happen, the impact on interest rates is a concern for mortgage holders.
Interest rate rise
The Bank of England raised interest rates in August 2018 for the second time in 10 years to 0.75%. It has hinted that interest rates could go even higher if the UK manages a smooth exit from the European Union, while its forecasts suggest rates could rise to 1.5% over the next three years.
A lot will depend on the nature of Brexit and the impact on the economy of the departure from the EU. While it is difficult to predict if there will be a rate rise, most experts agree that if the interest rate goes up it will be gradual.
Should you fix?
Remortgaging also allows you to lock in to a fixed rate that can protect you from any rises in the interest rate.
If the Bank of England raises interest rates, there is a good chance you could see your monthly mortgage payments go up if you are on a variable rate mortgage. While fixed-rate mortgages tend to be more expensive, they can provide you with security against a rate rise. By fixing, you can keep your repayments the same so that any future rate changes won’t catch you off-guard.
Could a 10-year fix help Brexit-proof your mortgage? If you are worried about Brexit, taking out a long-term mortgage could give you peace of mind regarding a possible rise in interest rates.
Plenty of good deals
Financial information website Moneyfacts shows that the number of 10-year fixed-rate mortgages has gone up from 16 to 150 over the past five years, while the average rate fell from 4.61% to 3.05%.
For borrowers with a 40% deposit, there are plenty of good deals available.
TSB has a 10-year fix at 2.29% for a 60% LTV, although it comes with a fee of £995.
Coventry Building Society will let you fix your mortgage at 2.35% for 10 years and lend up to 65% of the value of the property. However, it comes with a fee of £999.
David Hollingworth, mortgage expert at broker London & Country, says: “It’s possible to fix for as long as 10 years and rates are attractive. That would see the homeowner lock in their interest rate at what is a low rate and give them long-term peace of mind.”
However, he warns that fixed rates will typically tie the borrower in with hefty redemption penalties – the fees charged by a lender if you repay a loan earlier than the agreed term – during the fixed-rate period.
He adds: “It can make sense to lock in only for what is a foreseeable timeline. A long-term fix may work well for those who know they are staying put for the long run, but many people will be attracted by deals that fit in with their timelines more appropriately. “As a result, five-year fixed rates have been more popular but still offer medium-term security rather than the shorter-term rates.”
TSB 10-year fixed-rate mortgage 2.29%
TSB’s 10-year fix comes with a rate of 2.29% for buyers with a 60% LTV
Based on a £100,000 mortgage repaid over 15 years on a £200,000 property, this mortgage costs £662 a month – £7,909 per year over the fixed period – with no fees and £300 cashback.