Popularity of five-year mortgages increases as interest rate rise looms

20th June 2014


An increasing number of homeowners are opting to fix their mortgages for five years as the prospect of the first interest rate rise in five years looms.

Although just one-third of households have any type of fixed rate mortgage, with the majority of homeowners on a tracker deal or sitting on their standard variable rate (SVR), those who do fix are taking out longer terms.

According to Halifax 62% of the 573,866 fixed rate loans provided in 2013, down from 68% in 2008, but there has been an increase in the number of five-year terms to 34% in 2013 from 22% in 2008.

To cater for the increasing demand for five-year mortgages, Halifax has launched a new range of loans.

It is offering existing homemovers and first-time buyers a rate of 3.98% on loan-to-values (LTVs) of between 60% and 75% with a £999 fee. For those remortgaging on the same terms the rate is 4.08%.

For those homemovers and first-time buyers a with a smaller deposit 75% to 85% (LTVs) will pay a rate of 4.84% for five years and remortgaging customers pay 4.94% for the same LTV.

Ian Wilson, head of Halifax Intermediaries,’ said: ‘We have taken the opportunity to enhance our product range with a suite of new competitive five-year mortgage products…In terms of the overall mortgage market, two-year fixed deals have the highest take up.

‘However, buyers are increasingly locking into longer term deals with four-to-nine year deals gaining popularity since 2008.’

Homeowners sitting on tracker rates or their lender’s SVR may have benefitted from historically low mortgage rates for the past five years as base rate remained at 0.5% but that is about to change as the Bank of England moves closer to increasing interest rates.

Five year mortgage rates have already been drifting up from last year’s lows and they will continues upwards as interest rates rise.

Last week Bank governor Mark Carney warned rates could rise ‘sooner than expected’ and some markets experts have speculated there could be a rise as early as this summer.


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