what experts say after base rate hold (aff)

Homeowners should aim for a five-year fixed rate mortgage following the Bank of England’s decision to hold the base rate, according to online estate agent Purplebricks.

The base rate, which currently sits at 3.75% has led to homeowners wondering whether they would be better off on a two-year or five-year fixed rate.

Mortgage rates across the UK have been rising over the last several years due to the ongoing geopolitical issues across the world firstly in Ukraine and now in Iran.

There are advantages and disadvantages to both options when searching for a mortgage rate according to Tom Evans, Sales Director at Purplebricks.

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A two-year fixed rate can appear to offer a lower initial rate than a five-year rate, meaning a lower monthly repayment.

It also offers a flexibility that allows homeowners to be able to cash in sooner on potentially lower rates if they begin to fall.

This rate is also good for homeowners looking to move or refinance in the next two years.

However, while there are positives to be had, there are also negatives, warns Tom.

Costs are one of the biggest considerations for homeowners on a two-year fixed rate, as they will need to remortgage sooner and new deals can come with additional fees.

When coupled with legal fees, it can be an expensive process as well as an exposure to increasing rates sooner than those on a five-year fixed rate.

Tom said: “For homeowners who believe in the property market and expect for rates to fall, this is the rate for them.

“It also offers better flexibility and a shorter commitment for homeowners to ensure they can try and land the best deal possible in the shortest amount of time.

“Many homeowners should consider what they want to get from their home before they opt to choose their fixed rate but for some there is value in getting the two-year fixed rate.”

Tom believes a five-year fixed rate can offer more security and cost certainty until 2031.

If homeowners know what their fixed-rate mortgages costs are, they are able to budget for the rest of their expenses more easily.

There is less hassle for a homeowner on a five-year fixed rate because there is no need to shop around for a new deal, incurring more fees.

Indeed, homeowners on a five-year fixed rate will pay one set of fees compared to the three sets of fees homeowners on a two-year fixed rate deal will find themselves paying over the same period.

Tom says a five-year fixed rate can offer more protection than a two-year rate, adding: “Whether prices rise or fall, a homeowner is locked in to the rate agreed when they signed their contracts.

“A five-year deal is also more likely to shield a homeowner from geopolitical events, compared to living on two-year rates that absorb any global changes into every new deal.”

There are still cons to a five-year fixed rate mortgage, however. Monthly costs are higher and if rates drop, a homeowner is potentially paying a higher rate for longer.

Tom believes the five-year fixed rate offers the best deal for homeowners putting down roots because it provides stability.

He said: “The five-year fixed rate mortgage is a longer obligation, which can sometimes give homeowners itchy feet but it usually appears to be the best strategy on the whole to ensure that the homeowner gets the most bang for their buck.

“By ensuring the security of a five-year rate, it allows for homeowners and their families to begin saving up for other things as they know the cost for the next five years.

“No matter how the market might swing, the fixed term rate is iron clad and will not change meaning that figure is paid for five years without continually requiring homeowners to search for a better deal.

“Overall, I believe that the five-year fixed term would be the best option for Brits looking to ensure they have stability as current geopolitics mean it is hard to predict if or when the Bank of England may decide to rise or cut the base rate.”