One mortgage expert has recently advised people to ignore two year fixed rate contractor mortgages.
Ray Boulger, from John Charcoal, explained that a lot of people have been encouraged to get five year fixed rate deals due to continuing economic uncertainty. However, mortgage lending companies are pushing two year fixes which are of little benefit.
He went on to say that John Charcoal has sold twice as many of the longer term fixes than the two year option this year even though lenders have been putting most of their marketing efforts into the two year market.
People opting for a two year fix are only getting security when they need it least, he continued. If interest rates rise during the next two years, which they inevitably will, buyers will have to have take out another fix at a higher rate when their current deal finishes.
According to the latest mortgage index from John Charcoal, the popularity of fixed rate mortgages is decreasing. In April, 41% of clients opted for a fixed rate, down a full fifteen percentage points from February.
Boulger believes that clients looking for a two year deal could be better advised to go for a tracker mortgage or one that offers a discount on the standard variable rate. He also expects the rates for cheaper five year fixes to drop below 4% to counteract the falling demand and this will make the premium over variable rate mortgages more acceptable.
The Chelsea Building Society is currently offering a 5 year 75% LTV deal at 3.99%, although the application fee for this mortgage is a hefty £1,995. Yorkshire Building Society has an 85% LTV five year fix for 5.09% plus £995 application fee.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.
