Long-term fixed mortgage deals rule

After 18 months of very appealing trackers, fixed rate mortgages are coming back to the fore.

The latest Base Rate decision was preceded by a rash of fixed rate mortgage cuts (as I wrote last week in Fixed Rates Fall Further). Longer-term deals such as five or 10-year fixed rates are starting to look very competitive indeed.

Of course, with a 0.5% Base Rate it's easy to consider anything over 3% as an expensive deal, and it's true that lenders' margins are pretty wide at the moment. But rather than worrying about the profit being made by banks and building societies (and the recent results show that they are not exactly raking it in), why not just focus on the deals on the table?

There is currently a great selection of sub-5% five-year fixed rates and 10-year deals at less than 5.5%. Never mind the Base Rate today, these are historically good deals that can offer you a long-term level of security that could be invaluable to many borrowers. If you borrow £150,000 and fix your rate at 4.5% for five years you will be paying £834 a month until March 2014.

Let's face it, with interest rates at 0.5% there is only room for one more half percent cut, before the only way is up. It might not happen this year, or next, but rates will go up, and it's possible - even likely - that over five years they could rise significantly. A fixed rate shields you from any rises in mortgage payments you would face with a variable deal.

Variable options

However, if you want to take a variable rate mortgage (and you have a decent deposit) you should be able to get a really competitive rate -- cheaper than the long-term fixed rates on offer.

Those with a large deposit of 40% could secure a First Direct Offset Tracker at 2.89% (2.39% above Base Rate). But bear in mind that this is variable and, if interest rates rise to 5% (which is perfectly possible), your pay rate would go up to 7.39% -- ouch!

Indeed, the Bank of England would only need to increase Base Rate to 2% and the First Direct pay rate would rise above some of the current five-year fixed rate deals.

Of course, if you think that Base Rate will not go any higher than 2% over the next five years, a tracker could well be worth your while. This is especially true if you take a penalty-free tracker deal, which can offer you the best of both worlds -- the chance to pay exceptionally low mortgage rates now and the freedom to switch to a fix.

Or you could simply 'sit tight' until you want to fix by simply reverting onto your lender's SVR, particularly if it is low -- Nationwide's is 2.5% for example. This way you still get cheap payments, still get the chance to move onto a fix when you feel the time is right, and yet you do not face the remortgage, valuation and legal costs you would incur switching to a low tracker deal.

It doesn't cost any time or money to move onto your lender's SVR -- it's what happens when you do nothing at the end of your current deal.

No more switching

Even given the variable options, my money is still on the long-term fixed rates for those with enough equity to bag the best deals.

Long-term 10-year deals start from an amazing 4.75% (Leeds Building Society) and, as well as getting payment security until 2019, you will also avoid remortgaging for the whole period. Take a series of two-year deals and you will have remortgaged four times over the same period, which could cost you around £4,000, based on a typical arrangement fee of up to £999. Add to that valuation fees and legal costs - not to mention the time and hassle of remortgaging four times -  and the savvy borrowers sitting on a 10-year fix are, frankly, sitting pretty.

Stuck with your deal

However, you should make sure any fixed rate deal is portable, as you may want to move to another property and take your fixed rate with you. This might be to upgrade to a larger property but it might also be that you need to move because of job loss or divorce.

If your mortgage is not portable you could be liable for steep early repayment charges (ERCs). These redemption penalties are generally high on long-term fixed rates although the 10-year products are increasingly only charging ERCs for the first five years.

Best long-term deals

Below are my favourite five and 10-year fixed rates. For the purposes of this piece I have looked at deals available to those with a substantial deposit of at least 25% and upwards as, at the moment, this is where fixed rates are most competitive. For those borrowing up to 90% prices are not quite so keen.

In terms of fees I have only listed those products with fees under £1,000, although remember when you take out a long-term fixed rate the fee is less important than with a two-year deal. After all, you can spread the cost over the duration of the deal and you won't face any more remortgage costs.

Five-year fixed rates

10-year fixed rates

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