Longer lasting fixed rate mortgages are on the rise. But should you really be fixing your mortgage deal for a decade?
Yorkshire Building Society has launched a market-leading ten-year fixed rate mortgage deal.
Now you can fix your mortgage rate at 3.99% until 2023 if you have at least a 25% deposit or the equivalent equity in your home for a remortgage. And you won’t have to pay through the nose for this leading rate either, as the deal comes with just a £130 processing fee.
The offer is one of three available for this price at the moment but the only one available with such a small fee.
Leeds Building Society also has a ten-year fixed rate mortgage at 3.99% on a 75% LTV with an eye watering fee of £1,999. HSBC offers the same rate to borrowers with a 40% deposit but for a smaller charge of £999.
According to financial data website Moneyfacts, ten-year deals are the longest available fixes and there are only 25 of them available today - which isn’t that many, compared to shorter two-year (1,092) or five-year fixes (621).
But should you really consider locking into a deal for a decade?
Why you should
There are several reasons why you might be happy spending ten years with the same mortgage.
For a start you can save on the cost of remortgaging. With a two-year deal you might have to remortgage five times in ten years each time the initial offer ends. That means shelling out five times on all the fees associated with getting a new mortgage - not to mention the hassle of the paperwork five times over.
But you also get peace of mind from a longer deal that other variable rate or shorter fixes just can’t provide. Knowing that what you pay each month will remain unchanged for ten years is pretty reassuring and is also helpful when it comes to budgeting and financial planning for the future.
On a £150,000 repayment mortgage taken out over 25 years, monthly repayments would be just £791 a month, every month, for ten years before you need to rethink your deal.
Another good reason to go for a longer lasting fixed rate deal is to lock into the record low mortgage rates around at the moment. The Funding for Lending Scheme has been widely credited with helping rates stay so low but even though this scheme has been extended, the low rates can’t last forever. So while there may be cheaper deals that pop up after you have locked in, over the long term you will probably be better off when rates creep up later on.
Why you shouldn’t
That said there are reasons why some borrowers don’t flock to longer lasting deals.
First off the early repayment charges (ERCs) can be pretty punishing.
ERCs are penalties you are liable for should you overpay by too much, switch to another provider or choose to pay your mortgage back early.
The Yorkshire deal comes with these prickly charges. This is how they breakdown over the ten-year period up until 2023:
|
Early Repayment Charge |
Date charge applies until |
|
7% |
30th June 2016 |
|
6% |
30th June 2018 |
|
4% |
30th June 2020 |
|
2% |
30th June 2022 |
|
1% |
30th June 2023 |
So if three years down the line your circumstances change you would face a charge of £8,506.68 on the remaining balance of a £150,000 mortgage (which would be £121,524). That said you can make penalty-free overpayments of up to 10% of the outstanding loan per year.
ERCs can be found on a variety of mortgage deals and are especially damaging if you want to switch onto a new mortgage that might be better for you or if your circumstances change – which is very likely over ten years.
After all who knows what you will be doing in ten years and whether it will revolve around home ownership and a mortgage. Your work might take you abroad for example.
If you don’t like the sound of a penalty for cutting loose your mortgage deal, take a look at this article: The best mortgages with no early repayment charges.
The other key element that might prevent you from pouncing on a ten-year fix is the price. You can get much cheaper mortgages at the moment.
For example, a two-year fixed rate deal from Leek United Building Society is available for 2.29% on the same 75% loan-to-value but with a fee of £995.
That would make your repayments £675 on a £150,000 mortgage taken out over 25 years. That’s £116 cheaper than the ten-year deal from Yorkshire Building Society.
Top ten-year fixed rate deals
If you have weighed up the pros and cons and are still interested in a mortgage fixed for a decade here are a few of the best rates.
|
Lender |
Rate |
Max LTV |
Fee |
ERCs |
|
3.99% (Fixed to 31/08/2023) |
60% |
£999 |
10% of mortgage if repaid in year one, falls by one percentage point each year until 2023 |
|
|
3.99% (Fixed to 30/06/2023) |
75% |
£1,999 |
6% of mortgage in years one and two, 5% in years three to six, 4% in years seven and eight, 3% in year nine and 2% in year ten. Plus fixed redemption admin fee £134 and fixed deeds fee £65 (not payable for full mortgage term). |
|
|
3.99% (Fixed to 30/06/2023) |
75% |
£130 |
7% of mortgage in first three years, 6% in years four and five, 4% in years six and seven, 2% in years eight and nine, 1% in year ten Plus deferred arrangement fee £90 fixed. |
|
|
4.19% (Fixed to 31/08/2023) |
60% |
£0 |
10% of mortgage if repaid in year one, falls by one percentage point each year until 2023 |
|
|
4.19% (Fixed to 30/06/2023) |
80% |
£999 |
6% of mortgage in years one and two, 5% in years three to six, 4% in years seven and eight, 3% in year nine and 2% in year ten. Plus fixed redemption admin fee £134 and fixed deeds fee £65 (not payable for full mortgage term). |
Source: Moneyfacts
The middle ground
But if you don’t think you can commit there may be some middle ground.
According to Moneyfacts the difference in average rates on a two-year fix compared to a five-year fix on a 75% LTV is just 0.04% and on a 60% LTV a five-year fix is actually cheaper on average.
So you can get two-year prices on a five-year deal if you shop around!
The Moneyfacts research reveals that the number of five-year fixed-rate mortgages launched in the past year has increased by 73%, whereas the traditionally popular two-year fix has only increased by 33%.
The latest five-year fixed rate bombshell is from HSBC for those with a 40% deposit, priced at just 2.49% with a £1,999 fee. Below are other top deals across a range of loan-to-values.
Top five-year fixed rate deals
|
Lender |
Rate Details |
Max |
Fee |
ERCs |
|
2.49% (Fixed to 31/08/2018) |
60% |
£1,999 |
5% of mortgage in year one, falls by one percentage point each year until 2018 |
|
|
2.64% |
65% |
£1,399 |
3% of mortgage in year one, 2% in years two to five |
|
|
2.79% (Fixed to 30/06/2018) |
70% |
£1,495 |
5% of mortgage in year one, 4% in year two, 3% in years three and four, 2% in year five |
|
|
2.84% (Fixed to 31/07/2018) |
75% |
£1,675 |
5% of mortgage in first three years, 4% in year four and 3% in year five
|
|
|
2.99% (Fixed to 31/05/2018) |
80% |
£1,094 |
5% of mortgage in first three years, 4% in year four, 3% in year five |
|
|
3.69% (Fixed to 30/06/2018) |
85% |
£999 |
5% of mortgage in year one, falls by one percentage point each year until 2018 |
|
|
4.19% |
90% |
£1,499 |
3% of mortgage in year one, 2% in years two to five |
|
|
5.49% (Fixed to 31/03/2018) |
95% |
£200 |
3% until 31/03/2018 of sum repaid. |
Source: Moneyfacts
What do you think? How long do you think is a good length to fix your rate for? Let us know your thoughts in the comment box below.
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At Lovemoney, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free Lovemoney 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), 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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