End of FLS could cause fixed rate complacency

Borrowers are missing the bigger picture when it comes to fixing by focusing on a base rate rise rather than other factors.

When considering when to fix borrowers should not only be looking at when the base rate will rise but also paying attention to when the Funding for Lending Scheme will end, Moneyfacts.co.uk has warned.

With the FLS due to end in 2018, a full year before experts predict a base rate rise, Moneyfacts.co.uk’s finance expert Rachel Springall has warned that complacency could creep into the market.

She said: “Base rate is not expected to rise until the end of 2019, but in 2018 the Funding for Lending Scheme will officially come to an end, which means that the cheap money lenders have had access to for four years will dry up, causing interest rates to rise.

And she also warned about the uncertain future after the pending EU referendum.

She said: “The upcoming EU referendum is also likely to have a significant impact, which means that the mortgage sector is likely to start changing well before the Bank of England increases base rate.

“The market is full of uncertainty and for that reason borrowers may find themselves better off with a 5-year fixed rate mortgage rather than a 2-year option.”

The latest research from Moneyfacts.co.uk suggests that buyers could save thousands of pounds by choosing a competitively priced 5-year fixed mortgage over a 2-year deal.

Compared with the lowest 5-year fixed rate mortgage at 1.99%, someone borrowing £200,000 over 25 years would pay up to £8,428 more in capital and interest repayments over the first five years by taking out the lowest 2-year fixed deal at 1.14%, which then rolls onto a Standard Variable Rate of 4.99%.

First-time buyers that fail to prepare for the end of the Help to Buy mortgage guarantee scheme could also be left with rising interest rates.

She added: “For those borrowers who are concerned about market fluctuations, a 5-year fixed mortgage offers some much needed security.

“There are many changes to the mortgage market expected over the next few years and interest rates are much more likely to rise than fall, so fixing for longer could be the ideal solution.”