Time to consider a fixed-term mortgage deal?

By Paul McVittie, Cumberland Building Society

Last updated at 12:00, Friday, 23 March 2012

The Bank of England base rate has been at 0.5 per cent for just over three years. This is both the lowest it has ever been since records began and one of the longest periods without a change in recent times.

Changes in the wind: Seems likely that at some point in the future the bank rate will rise and have an effect on mortgages

No-one knows for certain what is going to happen next, but it seems likely that at some point in the future the rate will rise and this will have a knock-on effect to many mortgages that are not conducted on a fixed-rate basis.

So is this the right time to consider changing lender and switching your mortgage to a fixed-rate deal? This will depend to some degree on your personal circumstances and current arrangements, but if interest rates do rise, then the fixed-rate deals that are presently available will certainly not be around at that time.

To start with, let’s consider the main features of a typical fixed-rate mortgage. A fixed-rate mortgage will guarantee that your interest rate will remain unchanged for a set period of time. You would normally have to pay an up-front product fee and be “tied in” to the deal for at least the length of the fixed-rate period. Advantages of taking a fixed-rate mortgage include:

Certainty of knowing what you will pay for a set period of time;

Ease of budgeting as your mortgage payment will remain the same whatever happens to interest rates;

Peace of mind as you can currently fix at relatively low rates for the longer term;

Potential to save money against a comparable variable-rate deal if interest rates do rise over the term of the product.

In the current market there is a danger in waiting for a lower fixed-rate deal to appear, than what is presently available. This of course could happen, but equally we may now have reached the lowest point and subsequent rates may be higher than those currently available.

You should also be careful when selecting the best deal for you.

Some lenders offer really low “headline” grabbing rates, but these come with large product fees, which often have to be paid up-front. It will sometimes be better to take a slightly higher rate but with a lower fee – as this will work out better value for you in the longer term.

Also, the whole thought of transferring your mortgage to a new lender can put you off the idea of shopping around.

Many people give up on the process at this point as they remember the hassle of buying their house. Changing lender is much simpler.

Once you’ve booked your appointment, take your last few payslips, bank statements and ID with you and you should be in and out of the office within an hour or so.

After that, if you decide to go ahead, your lender should look after the whole process for you without difficulty.