Mortgage rates are dropping to the relief of those looking to for a fixed deal but home owners should take care when choosing their new product, an expert has urged.
Property expert Bola Ranson said any current borrowers on a rate higher than 6.5 percent or those searching for a new product should go for a fixed rate of no more than two years.
He explained: “Rates are likely to come down over the course of the next 12 months and certainly in the short term.
“If for example you go ahead and fix into a five-year product you could find yourself stuck on what will eventually be an expensive deal and be losing out.
“A two-year fixed rate could give you the comfort of knowing where you stand on a monthly basis yet give you the freedom to be able to switch onto what is likely to be a more competitively priced product at the end of the fixed two-year term.”
Mr Ranson also shared some tips for those who are struggling to afford their repayments and who need to reduce them immediately.
He said: “I would suggest taking advantage of the new ‘low rates – high arrangement fee’ deals offered by some of the lenders in the market.
“These deals allow you to pay less each month in the form of a low rate, but you will pay a much higher arrangement fee which will be added to your mortgage balance.”
He said mortgage rates have started to come down in recent weeks as lenders have reduced their rates, after the Bank of England recently held the base rate at 5.25 percent.
Sharing his predictions for the months ahead, Mr Ranson said: “The mood amongst the market and mortgage lenders is that rates are unlikely to come down over the next 12 months.
“It is likely that they will only come down when inflation pressure comes down significantly, however we could start to see downward pressure as early as the end of the first quarter of next year.”
Recent figures from moneyfactscompare.co.uk showed average two- and five-year fixed rates have fallen for the second consecutive month to 6.47 percent and 5.97 percent respectively.
The average two-year fixed rate stands at 0.5 percent higher than the average five-year equivalent, a marginally narrower gap than the 0.51 percent difference last month.
Rachel Springall, finance expert at moneyfactscompare.co.uk, said: “Fixed mortgage rates have fallen across the spectrum, signalling a positive change in the market. Overall, the average two and five-year fixed rates have now fallen for the second month running, so borrowers could find cheaper deals to choose from.
“These are encouraging signs for borrowers who may be looking for a new fixed rate deal, but they still may be on the fence about locking in, hoping rates will fall further in the weeks to come.”
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