Contractors, seen Halifax’s 18-month fixed rate remortgage?

Halifax, a contractor-friendly lender, late last month launched a potentially disruptive 18-month fixed rate remortgage deal.

Amid growing demand among borrowers for shorter-term deals, the initial feedback has been positive.

But, writes John Yerou of Freelancer Financials, is a 1.5-year fixed rate remortgage the win-win everyone seems to be hailing it as, even if it is from a lender who knows its limited company contractor applicants from its self-employed sole trader applicants?

An 18-month (remortgage) offer that taps into the tough, bitter background

Well, it’s been a tough couple of years for homeowners who took out fixed-rate deals sub-2% before the mini-budget of the Liz Truss-led Tory government.

Regardless of how well-heeled you are, or once felt, the jump up to 5-6% deals has been a bitter pill to swallow.

Rightly or wrongly, many homeowners are still reticent to take a traditional fixed-rate product of 2 years, 3 years or 5 years.

A psychological fix

Why the reticence? Well, it’s mainly due to their hope that rates are going to drop back to something close to their expired/expiring sub-2% deal.

They’re not, by the way.

But, Halifax’s shorter-term fix offers a balance of stability and flexibility that — psychologically, at least — addresses homeowners’ concerns.

Five key features of the Halifax 1.5-year fixed-rate

Here are the headline features of Halifax’s 1.5-year fixed remortgage:

1. Shorter Term: Provides a fixed rate for 1.5 years, allowing borrowers to lock-in a competitive rate for a shorter period.

2. Flexibility: After the fixed term, borrowers can reassess their options and potentially take advantage of lower rates if market conditions improve.

3. Competitive Rates: The new remortgage products from Britain’s biggest lender offer competitive interest rates, starting at 4.37% for loans up to 60% Loan-to-Value (LTV) and increasing to 5.63% for loans up to 90% LTV.

4. Cashback Offer: The products come with a “£250 cashback” incentive.

5. Fees: There are five remortgage deals available in this package, and they all have a £1,499 fee. 

It’s also important to note that, with the Halifax's deal, borrowers must use their own conveyancer. Halifax doesn’t provide a free legal service with the product, but the “£250 cashback” should assist with the legal cost. 

Plus, at 90% LTV, the 1.5-year remortgage deal restricts the maximum loan sizes to £750,000. 

Who is Halifax's 1.5-year deal for?

Halifax has designed this new product to appeal to existing homeowners who want to secure a fixed rate for a shorter period, while remaining open to potential rate reductions in the future.

Most mortgage products offer homeowners the option of fixing a remortgage for two, three, five or even 10 years. For those not wanting to commit, this 18-month deal has an audience.

In recent months, many contractors have told us that they would be keen to see shorter-term fixed deals.

So, this will be welcome news for homeowners expecting interest rates to fall next year and beyond.

Is there appetite among contractors for 18-month, even 12 month-fixes?

It’s interesting to consider whether lenders will follow Halifax’s example. Perhaps some may even go one step further, by introducing 12-month fixed-term deals.

Many market analysts expect interest rates to continue falling into 2025 (some bullishly so – see below). That might tempt homeowners to use shorter-term deals as a stepping stone to a lower rate.

Yes, there’s the security of locking in a budget-able repayment for 18 months, as rates may yet go up.

But, as suggested, most commentators predict interest rates to drop.

It really does depend on what you’re repaying now and your attitude to the immediate future.

Is a 1.5-year fixed rate going to pay off?

The crystal ball is about as opaque as I’ve ever known it.

Global markets remain volatile, in part because so much is set to change early in 2025.

But the UK’s borrowing costs have risen, and are rising. Inflation remains a worry -- even more so with the potential for fresh international conflict, at a time when supply chain interruption is a major concern.

UK interest rates prediction -- 4% by end of 2025

You’d think analysts would take all this into account. And I don’t want to rain on anyone’s parade, but I struggle to see how the Bank of England will be able to implement the bullish interest rates that Goldman Sachs is reportedly predicting.

Currently, markets are predicting that the BoE base rate will fall to four per cent by the end of 2025, down from 4.75 per cent now.

The most aggressive forecasters on rate cuts have been Goldman; predicting three per cent by the end of next year. As I say, that’s being way too optimistic, for me.

Making sure this or that remortgaging product is best for you

Don’t get me wrong: I’m always up for more product choices. And Halifax’s shorter fixed term will be perfect if you're tempted to move in a year-and-a-half, or if you expect rates to fall quickly within this period.

But there are no guarantees that UK interest rates will be lower in 18 months’ time.

On that note, I’ll finish with the blurb you’ll see on many mortgage articles, but it contains a message that really does come into its own when a deal like this one from the Halifax crops up:

It's important to note that specific terms, conditions, and interest rates may vary.

For the most accurate and up-to-date information, we recommend you consult one of our mortgage advisers.

Lastly, don't necessarily join the flock of...

Even if it’s just to find out whether you’d be better off with the 1.5-year Halifax deal, reach out to us. It’s better to be sure, financially, than go along with the headline rate -- just because that’s what everyone else seems to be doing!