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Personal Financial Planning Community

Should I fix my mortgage rate and for how long?

Author: Kinnison

Published: 09 Oct 2020

With the Bank of England (BOE) rate at 0.1%, you may be asking yourself ‘Is now the right time to refinance and fix my mortgage rate?’.

If you have a fixed rate mortgage, then your mortgage payments will not have changed because of the last interest rate cut nor any future reductions. If you are on a standard variable rate (SVR) then you may have seen a reduction at the lender’s discretion. If you are on a tracker mortgage (a mortgage that tracks the BOE base rate) then you should have seen a reduction in your monthly payments.

Whichever type of mortgage you are on, it makes good sense to review your finances/mortgage and consider your options.

Why fix your mortgage rate?

One the biggest attractions of fixing your mortgage rate is the certainty it provides to your monthly payments and overall finances. The interest rate is fixed for a specific period and will remain at this rate irrespective of any changes that the BOE may make. At the end of the fixed period the interest rate will typically revert to the lender’s SVR which traditionally has been a more expensive way to borrow.

How long should I fix my mortgage for 2,3,5 or 10 years?

Most lenders will offer mortgages fixed for an initial term of 2,3 or 5 years. Some lenders also offer initial fixed periods of 10 years. Currently banks are constantly reacting to the unpredictable environment and the interest rates between 2 year and 5-year fixed rate mortgages are at the closest levels in recent years. It is important that you consider the early repayment charges (ERCs) that typically apply to such mortgages and take into consideration your future plans.

Is now the best time to fix my mortgage?

Whilst the BOE rate is currently at an historic low it is easy to simply say ‘yes’. However, there may be numerous other factors which need to be taken into consideration such as:

  • Banks are constantly changing their borrower criteria. So, whilst you may meet a particular lenders’ current criteria you may not do so at a future date.
  • Your future plans e.g. moving home, family circumstances.
  • Your personal views of further rate cuts by the BOE.
  • Your personal circumstances e.g. age, employment status.

Should I get a variable rate mortgage?

The alternative to a fixed rate mortgage is to choose a variable rate mortgage. Tracker mortgages are fixed to a set percentage above the BOE’s base rate. Consequently, any changes to the BOE’s base rate will affect your monthly payments. You will need to be comfortable that your finances can withstand any rise in interest rates during the period of your mortgage.

What should you do now?

It is important that you review your current mortgage and ensure that it continues to be the right mortgage for your personal circumstances.

If you would like assistance in reviewing your current mortgage or are looking to purchase a new home and would like to discuss your personal circumstances, the Kinnison team would be delighted to assist you and help you through the process. Please contact us at our website or directly at our email address or call us on: +44 (0)20 3871 2823 for a no obligation initial discussion.

In the ICAEW Virtual Personal Financial Planning Conference on November 18 - 19 we will provide a detailed update on the mortgage market, take a look at the approach lenders are taking towards employed and self-employed/partners and borrowers looking to step-on step-up the property ladder, and options available for individuals approaching or in retirement.

The views expressed are the author’s and not ICAEW’s.

Your home or property may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.

Through our relationship with ICAEW we have a dedicated mortgage advisory service for ICAEW members, through Kinnison Limited, offering our bespoke service at a significantly discounted fee structure.

For mortgages below £750,000 our typical fee is £498 (£199 payable on application and £299 on completion). For more com-plex cases and mortgages above £750,000 our typical fee is up to 0.6% of the mortgage amount. Of this, 20% is payable when you receive your mortgage offer and the balance of 80% on completion. For example on a mortgage application of £800,000 the fee would be £4,800 in total. Of this, £960 (20%) would be payable on issuance of your mortgage offer and the balance of £3,840 (80%) on completion. The total fee is non refundable. We may also be paid commission from the lender.

These fees apply to mortgages regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate most buy-to-lets, commercial lending and some bridging finance. Fees for non-regulated mortgages will vary depending on your requirements and individual circumstances.

Kinnison Ltd is an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Con-duct Authority

Kinnison Ltd. Registered office: 91 Wimpole Street, London, W1G 0EF, United Kingdom. Registered in England & Wales No: 09582749.