Fix your mortgage at 3.99% for a decade

We look at the lowest ever 10-year fixed rate mortgage.

How does long-term mortgage security at a low rate of interest sound? 

That’s exactly what’s on offer from Norwich & Peterborough Building Society, which has just launched a 10-year fixed rate mortgage with a stonking interest rate of just 3.99% and a minuscule mortgage fee of £295, for those with a 25% deposit. 

Buyers can also benefit from £200 cashback, and if you're remortgaging, you'll get a free valuation and won't have to pay legal fees. 

So should you go for it?

Get it while you can! 

This mortgage is certainly attractive. 

By locking into such a low rate for 10 years, you are giving yourself long-term, affordable financial security. Your monthly repayments won’t budge, no matter what the Bank of England does with interest rates over the next decade. 

That’s 10 whole years! The world’s smartest economic experts can’t even predict what will happen in one year, let alone 10. 

Just look at the world 10 years ago: the Bank of England's base rate was 4% in 2002, with mortgage rates at around 5-6%, and that was considered low. They had dropped the previous year after 9/11 – a completely unpredictable event. 

The long-term average for the base rate is around 5%, and there is no limit to how high it can go. So a 10-year fix at 3.99% has a lot going for it. 

No more switching costs 

If the prospect of affordable payment security isn’t enough to whet your appetite, avoiding the need to remortgage an extra four times in the next decade might do the trick. 

Borrowers switching between two-year deals will need to move their mortgage in 2014, 2016, 2018 and 2020 before the 10-year fixers need to consider their homeloan in 2022. 

Plus, they will have to pay four sets of mortgage arrangement fees, which have rocketed in the last year to an average of £1,498, as we highlighted in Mortgage fees rise by 70%. That’s a massive £5,992 saving over the term of a 10-year fixed rate mortgage in arrangement fees alone. 

It’s adding up to a compelling case for the 10-year fixed mortgage. But things are not always that simple.

All about the money 

The bottom line is the bottom line and this isn’t the cheapest mortgage on the market – even if it is a fantastic deal in its category. 

The lowest like-for-like rate I could find (for borrowers with a 25% deposit) is Leeds Building Society’s 2.45% two-year discounted rate, though borrowers with a 40% deposit may be able to bag HSBC’s 1.99% discount. 

The cheapest two-year fix up to 75% of the property’s value is Cumberland Building Society’s 2.79% deal. 

The table below illustrates the monthly repayments on the N&P 10-year fix compared to the short-term deals. I’ve based the figures on a 25-year repayment mortgage and used loan sizes of £100,000, £200,000, and £300,000 to give a decent spread. 

The Leeds two-year discount mortgage is a whopping £166.30 a month cheaper than the Norwich & Peterborough 10-year fix on a £200,000 mortgage, amounting to a saving of £1,995.60 a year. That’s a hefty premium for payment security. 

Of course, if interest rates rise, the discounted variable rate will go up too, and that will eat into any savings you would achieve against the fixed-rate deal. 

In other words, it all depends on what will happen to interest rates, and that's a very big unknown. 

Rate expectations 

Most experts believe that it could be 2013 or even 2014 until we see the Bank of England hike its base rate – and many reckon super-low rates are here to stay for much longer. 

With the economy in the doldrums here and European contagion threatening to give us a bad dose of financial flu, the last thing we need, or are likely to get, is monetary policy that will stifle growth. 

Frankly, there is little impetus for borrowers to lock into a fixed deal because they are not worried about the Bank of England hiking rates. Super-low fixed rates are the carrots currently being dangled by mortgage lenders to get us to pay for security we aren’t sure we need. 

Whether or not a 10-year fixed rate is for you depends entirely on your circumstances and preferences. But if you want to secure your mortgage for the next decade this new N&P 10-year fix is a top deal. 

Buyer beware 

But remember that by locking into a 10-year fixed rate you are locking into a mortgage deal for a decade. 

Long-term rates often come with punitive Early Repayment Charges and the Norwich & Peterborough deal is no exception. You may not think you'll need to redeem your mortgage but life often gets in the way, be it job relocations or relationship breakdowns. 

Try to get out of your deal within the first three years and you will be charged 7% of the outstanding loan – that’s £14,000 on a mortgage of £200,000. 

This reduces to 6% in years three and four, 4% in years six and seven, 2% in years eight and nine and 1% in the final year. 

So, while no one can predict the future, a 10-year fix is most suitable for those who expect their current situation to remain stable, and who are in a property they want to stay in for the long term. 

If that’s the case, the N&P deal is a belter of a mortgage. But act quickly because it is likely to be popular. 

More: Cost of mortgage repayments falling | How to stand the best chance of getting a mortgage

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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.