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$4 Billion Golden Oppoerunity

Could a Three-year Fixed Rate UK Mortgage be Just Right?

Housing-Market / Mortgages Apr 05, 2016 - 11:46 AM GMT

By: MoneyFacts

Housing-Market

Uncertain times in the financial world often leave borrowers wondering how long they should fix their mortgage for. In order to meet the needs of those looking for a term that offers the perfect mix of security and a great rate – in other words, one that is ‘just right’ - Moneyfacts.co.uk has found that the number of three-year fixed rate mortgages has increased by 16% in just two years.


Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:        

“Increased competition in the mortgage market means that lenders are branching out in order to attract the attention of borrowers. This has resulted in a recent boom in three-year fixed rate mortgages, as well as a marked drop in the average three-year rate to the lowest on record.

“Mortgage customers are faced with a conundrum: many want to benefit from the market’s record low rates but are often wary of locking into a deal for five or more years in case their situation changes. A three-year deal, which sits comfortably in the middle of two and five-year options, could therefore be a good compromise.

“Borrowers who are undecided over which fixed term to go for will find little difference between a two-year fixed rate and a three-year deal. For example, the difference between the average two-year fixed rate at 60% loan-to-value (LTV) and the average three-year fixed rate at the same LTV is just 0.22%, or £21.54* a month.

“Borrowers with higher loan-to-values often prefer the security of a longer-term deal; however, by opting for longer deals and not re-evaluating their situation regularly they could end up paying a premium instead of benefitting from the equity they build up over time. A three-year fixed rate, on the other hand, will allow the borrower to review their situation sooner, thereby making it a more flexible and cost-effective choice.

“Three-year fixed rates often get pushed to the wayside in favour of a two or five-year deal. But borrowers looking at mortgages today should not overlook this option as they could be missing out on some great deals.”

*Based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis.

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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