Date posted: 26/08/2022

Category: Uncategorised

Author: KM

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Will more first-time buyers lock in longer mortgage terms?

If you’re looking to buy your first home right now, you’ve probably been hearing a lot about rising house prices and interest rates, as well as the cost of living. With so much uncertainty, it’s really important to carefully consider how much you can afford to pay when buying a home, including your mortgage costs.

Rightmove published an interesting article exploring what potentially may be a new trend for first time buyers. This is what they said:

“The average first-time buyer monthly payment for someone taking out a 90% loan-to-value mortgage that is fixed for two years is now 20% (+£163) higher than at the start of the year. It now works out at £976 per month.

Our property expert Tim Bannister says: “Those who want to move this year, particularly first-time buyers, may seek some financial certainty by locking in longer fixed-rate mortgage terms now before their monthly outgoings increase again.”

How does a fixed-rate mortgage work?

There a lots of different mortgages you can choose from. The interest rate you pay can be fixed or variable.

Think of a fixed-rate mortgage like a price freeze. Your interest rate will be guaranteed, so your monthly payments will remain the same for a specified period of time. And they don’t change until an agreed date. This can be anything from two to three years, up to 10 years, or even longer.

Fixed-rate mortgages are great for the certainty and peace of mind that comes with knowing exactly what you have to pay each month during the fixed period.

Here’s our guide on what the different types of mortgages are. You can also get helpful advice from an adviser, broker or lender.

Two-year or five-year fix? The gap is closing

The gap between interest rates for shorter and longer term mortgages has been closing in recent years, and they’re now virtually the same.

For example, the average interest rate for a 75% loan-to-value mortgage is now 2.9% for either a two-year or a five-year fixed deal, according to data from the Bank of England. Historically, lenders offered a lower rate on a two-year fix, with a difference of as much as 1% between the two deals over the past five years.

So if you want to set your budget for a longer period, and you plan to stay in your home for more than a couple of years, you might consider locking in a longer-term fixed rate.

But remember, when the fixed period ends, it’s most likely that you’ll automatically be transferred onto the lender’s Standard Variable Rate (SVR). This is usually a higher rate of interest than the fixed one you were on. But, as your deal will have ended, you’ll be free to apply for a new mortgage. So it’s a good idea to plan ahead well before your fixed period ends.

Modified article taken in part from an article for Rightmove 

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Important Information
All property sales and the financial advice that surrounds them are as unique as the people engaging in the transaction. It is important to not decide without seeking professional advice. If you want to sell your home and are considering redecorating before marketing, speak to one of our Property Professionals to get the best advice for presenting your home for sale before making any investment. This article is for the purpose of information only and should not be seen as financial advice.

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