Look before you leap



Since the UK voted to leave the EU in June mortgage rates have fallen to their lowest level ever. But borrowers should be careful before jumping straight into one of the very low rate fixed two year deals being offered as it could end up costing you more in the long term.

After Prime Minister Theresa May confirmed Article 50 will be triggered by the end of March 2017 it has prompted the two year negotiation period before the UK actually does leave the EU.  The uncertainty that will come from the Brexit negotiations means it is likely that lenders will tighten up their criteria on who and how much they will lend to.

The value of the pound will affect the price mortgage lenders have to pay to borrow cash which will obviously affect their choice of who to lend to and at what rate. For example, some lenders will lend as much as four times a borrower’s income. But that multiple might reduce if the lender becomes worried about the stability of the wider economy. Lenders use a wide range of tools to assess mortgage borrowers and take everything into account from their income and where it comes from, to their expenses and job security.

In two years time when a borrowers 2 year fixed rate deal ends, they may find they are unable to switch lenders because they no longer qualify for a mortgage elsewhere. So when a borrower comes to remortgage in two years, they may find they no longer qualify for a good rate and are forced onto their existing lender’s standard variable rate which will mean much higher monthly payments.

So rather than opting for a very cheap two year fixed rate deal why not consider fixing for five years, or opting for a lifetime variable rate which, subject to certain criteria, can be taken with you if you move home. The main benefits of longer term rates are not being at the mercy of lenders when the UK leaves the EU, and longer term rates are very competitive at the moment.