Now’s the time to fix your mortgage

We remind you constantly that interest rates in Britain are at 300-year lows. We go on about it, because we want to make it clear that this is a deeply abnormal situation – and one that is unsustainable.

Interest rates have been falling for 20-odd years. They can’t go much lower, and at some point will have to start rising back to normal levels. That may not happen in a hurry, but it will happen.

This information should come in pretty handy if you are in the process of chucking yourself and your life savings into Britain’s housing bubble. If rates are more likely to rise than to fall, then you are clearly better off locking in the rate you pay on your loan, than leaving it to rise with the base rate. That way you won’t run what the Bank of England calls “a real risk of exposure to rising interest rates” in the next few years.

Unfortunately – like most things in the world of UK personal finance – this is easier said than done. In the US, Denmark and France, you can fix for up to 40 years. Here you’ll be lucky to get a reasonable rate on a five-year deal. Anything longer has, so far, come with very high early redemption fees and a level of inflexibility that has maddened anyone stuck with them.

Still, there are some deals on the market that are worth considering (particularly given the failure of Mark Carney’s ‘forward guidance’). But before you do, it is worth noting, as Nicole Blackmore does in The Daily Telegraph, that you should think of a fixed rate as an insurance policy on which you pay a premium. That means the rates will be higher than on floating-rate deals: no one’s going to lend you money for ten years at 2.5%.

The good news is that they will lend for five years at not much more than that. The best five-year fix, says Blackmore, is Tesco Bank’s 2.79% deal. It isn’t for everyone – there’s a £1,495 fee and you can only get it up to a loan-to-value ratio of 60%.

If you want longer, the Norwich & Peterborough has a ten-year fix at 3.84% with no fee and a 75% loan-to-value limit.

Most long-term lenders will allow you to take a fixed-rate mortgage with you when you move house (as long as you still meet their criteria), but will charge redemption fees if you try to repay early.

If that makes you nervous – perhaps you think Carney will never raise rates and your fix will turn out to be a costly error – you might look to a new offering from the Hinckley & Rugby Building Society.

This is a five-year fix with no redemption fees attached. It is more expensive than competitors’ (3.55% with a £950 fee), but what it loses in price it makes up for in flexibility. The same goes for its three-year deal (2.99%, £990 fee).

Merryn

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