How borrowers are protecting their mortgages from Brexit
While the negotiation process is likely to last at least two years, homeowners have been responding already by choosing a variety of methods.
Perhaps the most noticeable has been the move among some borrowers towards protecting themselves for Brexit.
Rather than being tied-in for two years on a deal with the most competitive rate, borrowers are instead opting to pay a slightly higher interest rate on their loan in return for a penalty free deal, giving them the option to switch out of the deal should the macro-economic conditions change.
Other borrowers are taking a different tack in an effort to mitigate the economic uncertainty – by choosing longer-term fixed-rate loans. There has been a shift from two-year fixes to five-year fixes, as customers take advantage of the fact that mortgage rates are unlikely to fall much lower and that the economic turbulence which might be coming will have passed by the time they come to remortgage in 2022.
Rates on the rise
There are still five-year fixed-rate deals available on the market at under 2%, but swap rates are creeping up, and there will be pressure on the Bank of England to raise the base rate as inflation increases, so this may not be the case for long. As such, borrowers are being urged to act quickly if they are considering remortgaging to a longer term fixed-rate deal.
While two and five-year fixed products remain most popular, the gap between five and 10-year rates has now narrowed, and more borrowers are attracted to these longer-term deals which will ensure their repayments remain the same for a decade.
However, it is worth noting that while these deals could make sense for mature buyers who are re-mortgaging, first-time buyers should be warier, as the repayment penalties could be too significant to warrant fixing for such a long time, when they are more likely to need to move within the 10 year period.
Simon Gammon is managing partner at Knight Frank Finance