Recommendations from an influential think tank have sparked speculation that mortgages with lifetime fixed rates may one day be a reality. These mortgages would have interest rates that stayed the same for the full 25 to 30-year duration of the loan, meaning you wouldn’t need to remortgage.
Helping first-time buyers
The would-be homeowners would be able to take out these mortgages for around 25 to 30 years, and the interest rate would remain the same for the whole duration. After the election, the Centre for Policy Studies (CPS) think tank endorsed these mortgages. Citing them as a credible solution to the current homeownership crisis in the UK.
Variable and tracker rates
At the moment, borrowers looking to buy their first property can sign up to a tracker rate or a fixed rate mortgage deal. Like variable rates, tracker rate mortgages can increase or decrease according to external factors, such as the Bank of England’s base rate.
Whereas fixed rate deals are where the borrower can decide how long they want the interest rate on the mortgage to be fixed for, with the most popular options being 2 to 5 years. Although, 10 and 15 year fixed rate deals are increasingly being offered since launching in 2019.
Why would you fix it long-term?
As a first-time buyer, if you decide to fix your mortgage rate for the long term, this will give you the advantage of having a guaranteed rate you are paying for, as long as you have the mortgage.
Even if the Bank of England’s base rate increases during your mortgage term, your rate will still stay the same, meaning you won’t pay more. The chances of rates rising over 25 or 30 years is of course higher than over 5, so you’ll likely be protecting yourself from long-term interest rate rises. However, if rates were to drop, you could miss out on potential price cuts.
There’s also the possibility, at least according to the think tank, that lenders wouldn’t have to assess a borrower’s affordability while factoring in future property and rate rises. As with rates locked in for the long term, this kind of assessment wouldn’t be necessary. However, certain details such as how early repayment charges would work with these mortgages and what would happen if you moved house, are yet to be decided.
When it comes to getting the mortgage deal that’s best for you, speaking to our friendly team of mortgage advisors at TaylorMade can ensure you make the most informed decision.
Please get in touch with us today.
