An introduction to fixed rate mortgages
What this guide covers
This guide explains what is meant by a fixed rate mortgage and the benefits they offer.
We also have guides on variable rate mortgages and mortgage advice.
What is a fixed rate mortgage?
The interest rate charged on a fixed rate mortgage is guaranteed not to change for the first few years of the mortgage. This fixed period is usually two to five years but some Barclays International clients may be able to get a longer term.
Once the fixed period is over, the interest rate will revert back to the lender's standard variable rate. This is usually linked to the Bank of England base interest rate and can vary each month.
The main advantage
A fixed rate mortgage makes it easier to budget for mortgage payments because they will not vary as a result of interest rate changes. However, it does mean that you will not benefit from any drop in interest rates.
In exchange for this guaranteed rate, the lender may charge an arrangement fee. Also, there may be an early repayment charge if you repay the mortgage during the fixed period.
Choosing a mortgage
Selecting the right mortgage for you depends on various factors including:
- What you are comfortable with. Would you prefer to know in advance exactly what your payments will be, or do you need the higher level of flexibility that comes with a standard variable rate mortgage?
- Interest rates. How do you believe interest rates will change over the lifetime of the mortgage? If you think they will fall then a variable mortgage might be cheaper.
- Your financial capacity. Do you have the financial capacity to cope with a rise in interest rates? If not then a fixed rate mortgage might provide more predictability for you. That said, at the end of the fixed rate period the mortgage will revert to the standard variable rate, and that could mean a higher interest rate straight away. So you need to be absolutely certain that you are in a position to take on any mortgage interest rate rises from the very beginning.
The specialist mortgage team at Barclays International will find out in detail what your circumstances are in order to recommend the most appropriate mortgage for you. This service is free and does not require any commitment from you.
Important. As mentioned above, when the fixed period of a mortgage ends, the monthly payments on your mortgage may increase. You need to be prepared for this possibility.
The alternatives to a fixed rate mortgage
Variable mortgages
Variable rate mortgages have interest rate charges that can vary each month.
- Standard variable rate (SVR) mortgage. This is our most flexible mortgage and does not incur an arrangement fee. It is independent of the Bank of England base rate, however when there is a base rate increase usually the SVR interest will increase as well.
- Discount mortgage (subject to availability). This is based on the SVR but is cheaper. It is usually available for an introductory period of two to five years.
- Capped (subject to availability). This variable rate mortgage sets a maximum on how high the interest rate charged can go.
- Tracker. Barclays International tracker mortgages are usually free from early repayment charges. This means you can make large repayments if, for example, you receive a salary bonus.
Capital repayment or interest-only
The monthly payments on a capital repayment mortgage cover both the capital sum borrowed and the interest charged on it. This provides the certainty that the debt will be completely cleared at the end of the mortgage term.
Interest-only mortgages require lower monthly payments because these only cover the interest charged. As a result you will have to make separate arrangements to repay the capital borrowed.
These separate arrangements usually take the form of savings or investments. Barclays International can help you set up an appropriate financial structure.
Guidelines on calculating the amount you can borrow and the interest rates
The size of mortgage you can take out will depend on your personal and financial circumstances. Barclays International mortgage specialists will work closely with you to help determine what you can afford.
See Barclays International interest rates.
UK residential currency mortgages
These can be used to buy property in which you or a member of your family will live. It can also be used as a remortgage i.e. to replace an existing mortgage with additional borrowing.
The main benefit of a currency mortgage is to match the currency of your repayments to that of your income. Barclays International provides mortgages in sterling, US dollars, yen, euros, Hong Kong dollars and Swiss francs.
Surveys
A survey can assess the value and structural integrity of the property. Barclays International offers a range of reports with different levels of detail.
- Barclays valuation. This assesses the value of the property and states its overall condition.
- Barclays survey and valuation. As well as the valuation and assessment, this also pays attention to areas that need immediate or significant repair work.
- Barclays building survey. This covers all elements of the property and is the most thorough level of investigation that Barclays International offers its clients.
With each level of report, Barclays International will also include advice on saving energy, property maintenance, security and fire safety.
Taxes
Capital gains tax. When selling a property it might be subject to capital gains tax if it is not your primary residence.
Stamp Duty Land Tax1. You normally will have to pay Stamp Duty Land Tax when you buy a property in the UK as follows:
- No charge for properties up to £125,000
- 1% on properties between £125,000 and £250,000
- 3% on properties between £250,000 and £500,000
- 4% on residential properties from £500,000 to £1 million and 5% for residential properties over £1 million.
Your own national and personal tax considerations. There may be more tax liabilities depending on your personal, financial and domicile status. Barclays International is happy to introduce clients to its preferred tax specialist advisers, Ernst and Young.
Insurance
You need to take out buildings insurance on the property. This covers the fabric and structure of the building. Your possessions would need to be covered by separate contents insurance.
Barclays International is happy to introduce clients to its preferred insurance provider.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
If your loan is denominated in a currency other than sterling CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT.
For more information or to apply
To apply or find out more information speak to a Barclays International Mortgage Adviser. We specialise in providing a range of residential/investment mortgages for property purchases in the UK, Jersey, Guernsey, Isle of Man and Gibraltar.
Call us on +44 (0)1624 684305†
Alternatively please contact your Barclays International Relationship Manager, if you have one.
Terms and conditions apply to all mortgage products. We strongly recommend that you obtain your own independent tax advice before proceeding with an offshore mortgage.
Barclays will require a first charge over the property.
Barclays is a responsible lender and when considering your application for borrowing, your financial circumstances will be appraised. Remember should you run into difficulties please contact us immediately.
In all forms of advertising and marketing material where repayments are quoted, we will show clearly a typical Annual Percentage Rate (APR). We will also clearly indicate in all lending-related advertising issued in Jersey that we abide by the Code of Practice for Consumer Lending.
You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain your own independent tax and legal advice tailored to your individual circumstances.
1Source: http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm (as at July 2011).
The products and services described on this page are provided by the following companies, which are part of Barclays: Barclays Bank PLC in England and Wales and Barclays Private Clients International Limited in the Isle of Man, Jersey and Guernsey. For further information on these companies and Barclays please read the Important Information.
