Major UK lender launches ultra short mortgage fix for first time – and you can get £250 cashback
ONE of Britain’s biggest mortgage lender has shaken up the market by offering a short mortgage fix of just 18 months.
Most borrowers tends to choose from a mortgage terms of two or five years which make up the vast majority of deals offered by lenders
But now Halifax is offering a 1.5 year fix for remortgaging borrowers with rates starting from 4.37% if you have a deposit of 40%.
You can also get the short fix with a smaller deposit of 10% but the rate jumps to 5.63% or at 85% loan to value the rate is 5.25%.
The deal also comes with a fee of £1,499, however, you can get cashback of £250 to take the overall cost down slightly.
The rates are in line with competitive two-year fixes albeit with a high product fee.
However, shorter deals can appeal to borrowers who are looking for more flexibility and believe that rates will start to come down over the coming months and therefore don’t want to be tied into a more expensive deal for longer.
Rachel Springall from comparison site Moneyfactscompare.co.uk, said: “Some borrowers might not be comfortable to tie into a longer-term fixed mortgage, particularly if they hope mortgage rates will dip down next year.”
Barclays and Virgin also offer short-term fixes as low as 14 months, but these are only available to existing customers, whereas Halifax’s is deal can be for someone switching from a different provider.
Nicholas Mendes, mortgage technical manager at broker John Charcol, added: “Halifax’s introduction of a 1.5-year fixed-rate product is an interesting move that not only offers clients a unique balance of stability and flexibility but also enhances their competitive edge in the remortgaging market…
“As these deals are similarly priced to competitors two-year fixed rates, many borrowers might prefer the flexibility to move off a potentially higher rate sooner – even if it’s just by a couple of months, should interest rates fall from where they are currently over the next 18 months.”
Specialist lender Precise also offers a one-year fixed deal but rates start from a relatively high 5.59% and go up to 6.44%.
Earlier this month, the Bank of England cut the base rate from 5% to 4.75%.
And it’s broadly predicted that rates will continue to come down after the monetary policymakers managed to tame inflation.
A reduction in central interest rates usually marks a fall in borrowing costs.
However, in the short term this has not typically been the case with many mortgage lenders hiking costs in the aftermath of the fall in the base rate.
The new deal from Halifax, however, seems to suggest the lender is looking to appeal to customers who believe rates will be lower in around a year’s time.
Currently, the average two-year fix stands at 5.52%, this is up from 5.39% shortly before the Bank of England base rate reduction, according to data from moneyfactscompare.co.uk.
At the same time, the average five-year fix is 5.28%, up from 5.09%.
Should borrowers fix now or wait?
It can be difficult to decide whether to lock into a mortgage now or wait for a few months.
A shorter mortgage fix offers a bit of a compromise for borrowers.
You can take a rate now and if rates have fallen in 18 months time, you’ll be able to take advantage.
Of course, you are also taking a risk that rates could rise and be higher in the future.
No one knows for sure what will happen.
Most mortgage offers have a shelf life of up to six months, meaning that if you apply for a deal now the lender will honour the rate even if you don’t need it until early next year.
This is a good way to lock in rates and avoid added costs if prices keep rising.
If rates happen to fall in the mean time, you can then apply for another deal further down the line.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.