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Senior Mortgage Expert Advises Against Short-Term Fixed Mortgages

by Alison Smith

Short-term mortgages.  Many of us have one and have been attracted by the appealing rates and the security of fixed monthly payments, but are they all they are cracked up to be?

Ray Boulger is the senior technical manager at John Charcol, one of the top mortgage brokers in the country.  He says that borrowers should ignore the two –year fixed deals being offered by mortgage lenders and to instead consider a variable rate mortgage such as a tracker or a discount off the standard variable rate.  This will allow borrowers to take full advantage of the lower rates currently on offer with these products.

He went on to say “So far this year we have sold twice as many five-year fixed rates as two-year ones, although lenders generally have been putting most of their fixed rate promotional activity on the two year market – presumably because the headline rates are more eye-catching.

“The rationale for taking a longer-term view is that for clients who want the security of a fixed rate, two year fixes only offer security during the period when it is least needed, and if rates rise during that period it is inly likely to be possible to re-fix at a higher rate after two years.”

According to the John Charcol mortgage index, the popularity of fixed rate products is waning.  Only 41% of customers chose a fixed rate in April a figure which is down from 50.5% in March and 56.1% in February.

John Charcol expects the decreasing popularity for fixed-rate mortgages to result in the cheapest five-year fixed rate mortgage to fall below 4% – “this will reduce the premium over variable rates to a more acceptable level.”

There are some great deals out there right now for those looking for a five-year fixed rate with rates as low as 3.99% for loans up to 75% loan to value (LTV).  It’s prudent to shop around and to get the lowdown on the market as much as possible.  The Big Property List will bring you the market news as it happens helping you to make an informed decision.

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