With interest rates expected to rise early in the year, homeowners and those aspiring to get onto the property ladder could opt for longer term fixed-rate mortgages.
Demand for two-year fixed-rate mortgages and other short-term offerings is likely to wane in 2015 because of the pending rise in base rates, according to Simon Collins, mortgage technical manager at London-based mortgage broker John Charcol.
He said: “It was relatively safe to take out a two-year fixed-rate mortgage 18 months ago because base rates were, and still are, at an all-time low and a rise then was considered highly unlikely.
“This year, you will find more people opting to take out five-year and even 10-year fixed-rate deals prior to an increase in interest rates to ensure that they are getting the best deal for as long as possible.”
Speculation as to when the Bank of England will indeed raise base rates remains rife, but it all hinges on the result of the upcoming general election, according to Mr Collins. He said: “Much is dependent on whether we have a majority or coalition government after the elections. The latter could result in a lot of horse-haggling which will inevitably result in a delay in the increase in base rates.”
He added: “We also have to keep a keen eye on what happens with Europe. Love them or loathe them, Europe still remains one of our biggest trading partners, and the challenges Europe faces this year will certainly have an impact on the market.”
Rival banks have started off the new year by reigniting the mortgage price war through a series of cuts to their respective fixed-rate products.
First Direct, a division of HSBC Bank, now offers market-leading loans for three- and five-year fixed-rates loans as part of cuts to all of its fixed-rate mortgages at 65 and 75 per cent LTV.
The bank lowered its three-year fixed-rate to 1.99 per cent at 65 per cent LTV with a £1,450 fee.
In addition, the firm reduced its five-year fixed-rate mortgages to 2.39 per cent at 65 per cent LTV, with a fee of £1,450 also applicable.
First Direct has become the latest bank to offer 10-year fixed-rate deals ahead of the pending base rates increase.
On the eve of the new year, Leeds Building Society announced a revamp across its entire mortgage range, including a fall in rates by up to 0.49 of a percentage point on a range of loans.
The Leeds’ three-year fixed-rate mortgage has been cut to 2.39 per cent from 2.69 per cent, up to 75 LTV with an £800 fee.
It also launched a new five-year fixed-rate mortgage at 2.64 per cent, up to 65 per cent LTV with an £800 fee.
Not to be left out, Virgin Money has also introduced a host of changes to its range, including a reduced rate of 4.99 per cent for all 95 per cent LTV residential two-, three- and five-year fixed-rate loans, with no product fee.
It also launched a new Help to Buy equity loan Stamp Duty Buster range, offering cashback of £2,500, and a number of new products across its Intermediary Exclusive range, which is available through intermediaries registered with a Virgin Money national account.
Jane King, Mortgage Adviser at London based Ash-Ridge Private Finance, said: “I think this is a sign of more competitive pricing to come in 2015, but I expect affordability to be tight as lenders remain risk-averse following the FCA’s thematic reviews.”
