Mortgage Rates TrendDevelopment of mortgage interest rates
The two-year fixation, however, has lost its gloss in favor of a somewhat longer-term relationship: the five-year fixation - and the seven- and ten-year fixation - are also beginning to prove themselves. "Recently, the markets have seen an increasing use of longer-term interest rates, caused almost equally by an extremely low interest rates climate, changes in regulations and customers' expectation of interest rates rising in the near future.
One of the major causes of the postponement of two and three-year fixings to five, seven and even ten-year durations, according to a Yorkshire Building Society spokesperson, is insecurity. "The trend tends to be towards borrower looking for longer-term solutions when the markets show a certain degree of insecurity, e.g. after the EU-Reference.
Not surprisingly, house owners are out to fix the costs of their mortgage for longer periods of time. "In the run-up to the key interest cut in November 2017, we have also seen a significant consumer movement towards longer-term fixed-rate mortgage loans, with five-year lending becoming increasingly attractive. "Given the low interest rates environment," says Andrew Montlake, London brokers Coreco's CEO, "we have seen a move towards medium to longer-term fix rates, such as five-year rates, which have gained ground.
" A five-year fix does what it says on the can: fix a mortgage interest at a certain percent for five years or at least until enough lapse of execution so the borrowers can arrange a reverse mortgage without having to make a prepayment penalty (ERC). In general, longer-term fixing was associated with slightly higher charges.
"Even the [two years] tend to have been somewhat less expensive than five-year fixings," says Mr Harris, "but since prices for the latter have dropped and there is no longer much distinction between the two, many borrower have moved to five-year fixings. "Decades ago, given the price gap, only a few would have felt at ease logging into a five-year fix of 5.5 percent (as of December 2007).
"In the past there was a very large two-year period as the gap between the two-year and five-year periods was very high. Now that you can get five-year fixings below 2 percent, however, the choice to fix for longer is clearer."