Manchester Building Society's new mortgage offers lasting stability and peace of mind. But can fixing your mortgage for this long really be a good idea?
Manchester Building Society has launched a an extraordinary 25-year fixed rate mortgage deal on offer, effectively allowing you to set your repayments for the entire lifetime of the mortgage.
The product is unique in the market at the moment, but is not the first of its kind. According to Moneyfacts there were a few 25-year fixed rate deals available four years ago. Now long-term stability can only be found on deals that last between five and ten years.
Fixed forever
Manchester Building Society is offering borrowers a 25-year fixed rate of 5.24% for an arrangement fee of £995 on a loan-to-value of 80%.
So if you needed to take out £150,000 over 25 years you would be able to pay a fixed payment of £897.99 each month for the lifetime of the mortgage.
There are a few big positives to this. You never need to worry about what's happening with bank base rate and how your rate will be affected. You also remove the stress of having to remortgage every few years to chase the best deal.
You can budget on a more long-term basis, knowing that you will potentially never have to think about your mortgage again unless you move. But even then the mortgage is portable, meaning you can take it with you as long as your financial circumstances haven't changed too much.
The criteria
If you like the sound of this deal, you will need to meet a certain standard as a borrower in order to be successful in getting approved.
You have to be aged between 25 and 70 years old to apply and have a squeaky clean credit history. You can make sure your credit record is in order using the free trial with Experian.
Income is also a factor. You must have been employed for at least six months and be earning £20,000 if you are applying as a single applicant. Self-employed borrowers will need two years' full accounts as proof of income. Everyone else will need to provide three months' of recent wage slips.
In addition, all applicants must provide six months' worth of bank statements to support the application.
Property restrictions
As well as strict criteria for applicants, the property has to meet certain conditions too.
Manchester Building Society will not lend if you're planning to buy a studio flat, a flat above commercial premises or a flat above four storeys. However, new-build properties will be considered.
The property you want to buy needs to be within England and Wales and must have a minimum value of £125,000.
Fixing for 25 years
I have to admit I am tempted by the security, stability and peace of mind this deal offers.
But is fixing for such a long time, a good idea?
Losing out
Currently there are much cheaper tracker and shorter long-term fixed rates than what the Manchester mortgage offers.
The Post Office, for example, has a two-year tracker mortgage with the same LTV of 80% available for just 3.49% (tracking base rate plus 2.99%). This means that you could be paying £750.13 a month instead of £897.99 on a £150,000 mortgage taken out over 25 years. That’s a £148 monthly saving over that two year period if base rate doesn't change.
Tracker deals are incredibly cheap at the moment. That’s because the base rate is still down at a record low of 0.5%. What's more, base rate doesn't look like moving anytime soon. And even when it does, it's likely to increase slowly, making the deals even more attractive.
Also, since the Funding for Lending Scheme launched, lenders have gone sub-3% on five-year fixed rates. NatWest currently has the cheapest on offer with a rate of 2.95%, but you will need £2,495 spare to afford the fees and a massive 40% deposit saved up.
Clearly, there is money to be saved in the short term with better offers, but a rate of 5.24% is historically low for a fixed rate deal. So although you may pay more than others now, in the future you could reap the rewards of fixing for so long when rates start to creep up again.
Early Repayment Charges
Many commentators have cited that the Early Repayment Charges are a potential downside on a fixed rate mortgage of this length. This is the penalty you pay to get out of the deal should your circumstances change, which is quite likely to happen over 25 years!
Fixed rate deals usually have a tiered system of charges that decrease over the years as the deal draws to a close or a fixed charge no matter where you are in the deal. On average ERCs are around 3% but can be as high as 6%.
However, Manchester Building Society will only charge 1.5% for the first five years and 0.75% between the fifth and seventh year. After that you are able to move on fee free, meaning this mortgage only has a seven year tie-in rather than a 25-year trap you might expect. You can also overpay by up to 10% each year without penalty.
The relatively lenient ERCs, reasonable deposit size and historically low rate makes this a very interesting prospect for normal borrowers but even better for landords. Interestingly, buy-to let landlords can also take advantage of this deal but at a rate of 5.74% on capital repayments or 5.99% on interest only, with the same low early repayment charges for seven years on a max LTV of 75% and an arrangement fee of £749.
Shorter long-term fixes
If you are on the hunt for a shorter long-term deal check out a few of the five-, seven- and ten-year fixed mortgages on offer at the moment.
But to get the best picture of what’s available to suit your circumstances, you can chat to one of our fee-free mortgage advisors instead.
|
Lender |
Deal |
Rate |
Max LTV |
Fee |
| The Post Office | Five-year fixed | 3.59% | 75% | £0 |
| Lloyds TSB | Five-year fixed | 3.74% | 60% | £0 |
|
Seven-year fixed |
3.99% |
60% |
£1,499 |
|
| Lloyds TSB | Five-year fixed | 4.09% | 75% | £0 |
| Woolwich | Five-year fixed | 4.29% | 80% | £999 |
|
Seven-year fixed |
4.29% |
75% |
£995 |
|
| Yorkshire BS | Five-year fixed | 4.39% | 75% | £495 |
|
Seven-year fixed |
4.49% |
60% |
£0 |
|
|
Ten-year fixed |
4.79% |
80% |
£1,198 |
|
|
Seven-year fixed |
4.89% |
85% |
£995 |
|
|
Ten-year fixed |
4.99% |
70% |
£1,499 |
|
|
Ten-year fixed |
4.99% |
85% |
£995 |
|
|
Ten-year fixed |
5.19% |
75% |
£0 |
|
|
Seven-year fixed |
5.29% |
90% |
£1,499 |
|
| Clydesdale Bank | Five-year fixed | 5.89% | 90% | £999 |
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.
Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online
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
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