Fixed Rate Deals Can ‘Insulate’ Consumer Spending

Opting for a long-term fixed-rate deal can help homeowners keep themselves “insulated” from any predicted future interest rate rises, an industry commentator has suggested.

Following five base rate increases by the Bank of England’s monetary policy committee over the last 12 months, Paul Fincham, spokesperson for Halifax, claimed that choosing such a product will keep consumers’ secured loan repayments consistent over a set period of time. He added that the offer’s “biggest attraction” was that it could help reduce pressure on consumers’ day-to-day finances as “it’s often the single largest monthly outgoing and to be able to fix that so that they have some level of certainty around what their repayments will be [is a plus]“.

He said: “The benefit of fixed-rate, regardless of the term is that you are obviously insulated against any interest rate rises and that’s the absolute beauty of it … It is irrelevant, the term that the deal is offered for; that principle applies whether it’s a two-year, five-year, ten, 15 or 25-year deal.”

Mr Fincham reported that although fixed-rate products can offer “peace of mind” for prospective property buyers from “across the board”, he also suggested that consumers are looking for flexibility in the terms and conditions of their deal. The Halifax representative claimed that “the most important thing from the borrowers’ point of view is the fact the deal is fully portable. So, the mortgage is to your name, not your property”, which in turn could mean that they may not be liable to pay expensive cancellation fees. Meanwhile, the ability to either under, or overpay secured loan costs on a month-to-month basis was reported as to be an attractive option for prospective property buyers.

Earlier this year, a study conducted by LV revealed that potential first-time buyers are becoming evermore prepared to encounter financial risks as they take out larger secured loans in an attempt to buy their first home. Findings from the company revealed that one out of six - or 15 per cent - of young property purchasers aged 35 and under are reported to be willing to get a mortgage which is worth at least quadruple their yearly income.

Meanwhile, some five per cent of those in the age bracket claim to have no qualms over choosing a deal which is worth more than five times the amount of their annual salary. However, Nigel Snell, communications director for the insurance firm, claimed that as consumers “stretch themselves well beyond traditional lending limits” they are potentially opening themselves to financial risk if they choose to not get cover to protect their monthly mortgage repayments.

His comments come after a study from the company indicated that just under a third of young buyers (30 per cent) are ready to not take out insurance so that they can borrow the highest amount possible. Although the study only contained “hypothetical responses”, he expressed fears “that under genuine pressure to realise their home-buying dreams, many more buyers will choose to walk the mortgage highwire without a financial safety net”.

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