Low Fixed Rate Mortgages... Here to Stay?

Mortgage-wise, now is about as good as it is going to get for potential homebuyers. Fixed rate mortgages are at record lows and showing no signs that they will bounce back any time soon. So if you have long dreamed of becoming a homeowner, you should start having a look around today!

What is a fixed rate mortgage?

When lenders say "fixed rate", they don’t mean that the interest never changes. Instead, you can expect that it will stay constant for a certain period of time at the beginning of the mortgage period. After that it will vary, according to the economy and the interest rate set by the Bank of England. Generally the "fixed" period is 2, 5, or 10 years with higher interest rates for longer fixed periods.

What’s the best deal?

Shopping for a mortgage is not as simple as looking for the lowest interest rate. There are lots of other factors to consider, like the size of the down payment and whether your lender charges an arrangement fee.

2-year fixed rates

HSBC tends to offer the lowest rates. Right now they have a 2-year fixed rate mortgage with an interest rate of 0.99 per cent, provided you pay a 40 per cent deposit (which means this is generally a mortgage for those who are refinancing or moving homes).

There is also a 10 per cent deposit, 2-year option for first-time homebuyers, with an interest rate of 1.97 per cent. These are some of the lowest interest rates in history. However, you should also remember to factor in a one-time payment of £1,762 for arrangement fees.

10-year fixed rates

Of course, some people may want the stability of a longer fixed rate. In that case the field gets a bit more crowded. For 10-year fixed rates, HSBC still offers one of the lowest interest rates for those willing to pay a 40 per cent deposit: 2.79 per cent interest with no arrangement fee.

However, for those who can only afford a 10 per cent down payment on the 10 year fixed mortgage, the best offers are TSB and Nationwide, where the rate jumps up to 4.19 per cent. TSB charges £200 in fees, while Nationwide charges £999.

5-year fixed rates

If you are looking for a middle way, you can check out 5-year fixed rates. In this category, HSBC offers a good deal for those able to put down 40 per cent up front: 1.99 per cent with £1,262 in fees, while First Direct also offers some comparable rates.

Those needing to limit the down payment to 10 per cent might check out the Norwich and Peterborough Building Society, which offers a 2.8 per cent interest rate with a £1,776 fee, or the Yorkshire Building Society, which is promoting a 2.8 per cent interest rate with a £1,305 fee.

Whatever your situation, if you are thinking of buying or changing homes or refinancing your mortgage, now is a good time do it. There are low-interest mortgage plans available for almost every category of homebuyer.