The death of the ten-year mortgage

If you want to fix your rate for a decade, you don't have many options!

I wrote about the attraction of fixing your mortgage rate for a full decade last June, and was able to pick out ten decent decade-long deals available in the market at that time to choose from.

Fast forward nine months, and there’s a somewhat more limited range of options. Indeed, according to financial information site Moneyfacts, there is currently a solitary ten-year fixed rate mortgage available to interested borrowers.

Here is how the number of ten year deals on offer has changed over the last couple of years, according to Moneyfacts.

So bar September of last year, there has been a sharp fall in the number of available deals, to the point that you now have just a single ten-year deal in the marketplace.

The Yorkshire mortgage

What is somewhat surprising is that the deal on offer from Yorkshire Building Society is still pretty good despite its lack of competition. The rate on this ten-year fixed rate is 5.49%, and it requires a deposit of 25%, with a fee of £995. That’s 0.2% more expensive than the best deals nine months ago, but still attractive all the same.

One thing to consider when fixing for such a long time are the early repayment charges – the fees you need to pay in order to get out of the mortgage. Again, they are more than reasonable for a mortgage of this length – 7% of the amount repaid if redeeming in the first three years, 6% in years four and five, 4% in years six and seven, 2% in years eight and nine, and 1% in year ten.

On the whole, I think the Yorkshire deal is a really good mortgage. So why is it the only one?

A lack of demand

It’s probably down to two factors – demand and profitability.

For many, many years, the mortgage of choice for Britain’s borrowers has been the two-year fixed rate mortgage. We like to chop and change our deal every couple of years, keep shopping around for a new deal. Even though we could save money by taking a long-term approach, few of us do so. And if we aren’t snapping up the ten-year deals on offer, why should lenders offer them?

However, there were a decent number of deals to choose from a matter of months ago. What’s changed since then? The answer is that there is far more uncertainty when it comes to the pricing of mortgage deals. Swap rates, the mechanism used to work out fixed rate mortgage pricing, have been somewhat unpredictable recently.

My own instinct is that lenders are unsure at present what a profitable rate is for a ten-year deal and so are holding fire until things settle down. Similarly, of late there has been a reduction in the number of five-year fixed rates, for this very reason.

The pros of fixing for a decade

So why should you consider fixing your mortgage rate for such a long period?

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First, there’s the certainty. If you’re like me, it’s a bonus to know exactly how much you’re going to be shelling out on your mortgage payments each month. And the longer you have that certainty for, the easier it is to plan your finances for the longer term.

Then there’s the ease of it. Fix your mortgage for ten years, and you can forget about base rate and swap rates for a full decade, without having to worry about the costs of remortgaging. If you stick to two-year fixed rates, that comes to five separate remortgages when you could instead be enjoying a 10-year fixed rate. That’s five lots of product fees, surveys, valuations, and the sheer time and energy spent finding the mortgage, and sorting out the applications. Life is a lot easier with a long-term fixed rate.

Of course, ease and certainty are all well and good, but if the mortgage rates on offer are rubbish, it’s all a pointless exercise. But a rate of 5.49% is historically pretty low for a mortgage, particularly if you’re securing that rate for a full decade.

So how does the Yorkshire rate compare to the best five-year deals in the market, given there are no ten-year deals for it to rival? Below I’ve put together the five best deals I can find offering 70%-80% loan-to-value.

As you can see, you will be paying a premium for the extra five years of knowing what your mortgage payments will be. Personally, I think that’s easily a price worth paying. After all, if you go for one of the deals above and want to remortgage at the end of the five years, with base rate rising, who knows what sort of rates you will have to choose from? There’s a very good chance you’ll be looking at a sharp jump in repayments.

The negatives

There are downsides to fixing for such a long period to consider though.

Sure, you know exactly how much you’ll be paying each month. But you’ll be paying a fair old premium for that certainty. Some borrowers may prefer to go for an ultra-cheap tracker, and overpay on their mortgage each month. That way they can quickly build up equity in the property, so that when the time comes to remortgage they can do so at a lower loan-to-value, and so enjoy far more competitive rates.

There is also the issue of trapping yourself with such a long-term mortgage. What if you want to move before the end of the ten-year period? You don’t want to have to shell out a massive early repayment charge, on top of the other costs you’ll face moving house.

Some mortgage lenders will allow you to take your mortgage with you (called porting) and adjust the mortgage terms to cover the purchase of the new property. It’s not always the case though, and is something you’ll need to discuss with your mortgage broker.

More: Get a marvellous mortgage | 15 top cash ISAs for transfers | Five ways to cut the cost of moving home

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.