Tue 04 Sep 2018 View all news articles
Now that interest rates have started to rise, the period of record low mortgage rates seems to be coming to an end. With the Base rate set to rise further over the next few years, it’s perhaps no surprise that many borrowers have turned to fixed-rate products in recent years in order to benefit from the certainty of knowing what they will pay.
Over recent months, the choice of 10-year fixed-rate mortgage deals has risen sharply. While these products give you long-term security, they aren’t for everyone. If you’re thinking of a long-term fixed rate, keep reading to find out all the pros and cons.
Great choice of 10-year fixed rates available
Research from financial analysts Moneyfacts has recently revealed that the choice of 10-year fixed-rate deals has increased sharply in the last few months.
You now have the choice of 139 deals to choose from, up from just 104 a year ago. In addition, the average cost of a 10-year fixed rate has fallen to 3.10%, down from 3.52% in July 2016.
Charlotte Nelson from Moneyfacts says: “The improvement to the average 10-year fixed rate is in stark contrast to the rest of the mortgage market, with rates elsewhere slowly but surely rising. The 10-year fixed rate mortgage market may be small but the number of fixed rate deals available is certainly increasing.
“Moneyfacts.co.uk data also shows that this extra interest has seen a growing number of lenders enter the market, with the number of providers offering 10-year mortgages increasing from just eight two years ago to 14 today."
Why you should consider a 10-year fixed-rate mortgage deal
With interest rates still low – the average cost of a 10-year fix is just 3.10% – it’s perhaps no surprise that more and more borrowers are turning to a long-term fix. Fixing your mortgage at a low level guarantees your repayments for a decade. Considering the low rates currently available, this can seem like an attractive proposition.
The main advantage of a long-term fix is the security that you’re protected against rising mortgage repayments. The Bank of England are expecting interest rates to rise to a level of around 2 – 3% in the next few years and by fixing you can ensure you know exactly what you will be paying.
In addition, you won’t currently pay much more for a 10-year fix than you would for a shorter-term product. Recent research shows that the gap between the average 5-year and 10-year fixed rate is just 0.17%, meaning that you’re not paying a lot more for the security of a decade-long deal.
Fixing your mortgage for the long-term also helps you to avoid the hassle and the cost of remortgaging on a regular basis. If you take a shorter deal then you could find yourself paying arrangement, legal and valuation fees every time you come to switch your mortgage, while with a 10-year deal you won’t have to worry.
Fixing for 10 years also means you don’t have to worry about being underwritten for another deal in the future. For example, if you’d taken a 2-year fixed rate and then became self-employed, it might be hard for you to negotiate another deal down the line.
Things to consider if you’re considering a 10-year fix
While there are lots of reasons to consider fixing your mortgage for 10 years, there are also several factors that you should take into account.
Firstly, committing to a 10-year deal means that you’re also committing to a lender and to early repayment charges for a decade. Many long-term fixed rate products have substantial early repayment charges, meaning that if you repay part or all of your mortgage within the 10 years you could face thousands of pounds in penalties.
Even if your mortgage rate is portable – so you can take it with you if you move home – this is no guarantee of avoiding early repayment charges. If a lender’s underwriting criteria has changed since you took out your original mortgage they may not underwrite your application if you want to move home, and you could still end up paying the charges. Read our guide to porting your mortgage.
If you’re committing to a 10-year fixed rate you need to be confident that you aren’t going to want to come out of that deal during the next decade.
Another factor to consider is that even though the cost of 10-year rates has fallen, your repayments are still likely to be higher than if you take a short-term deal. The cost of 2-year fixed-rate mortgages is generally lower than longer-term products, so if your priority is to minimise your initial repayments then a short-term deal may be more beneficial.
In addition, taking out a 10-year fixed rate means you restrict your remortgage options in the future. If you are borrowing a high loan-to-value (LTV) then you may want to think twice about committing for 10 years. If the value of your home increases in the future, you may be able to remortgage onto a lower interest rate as the LTV of your borrowing has decreased.
Committing to a higher rate for 10 years could end up costing you more than taking a shorter-term deal and remortgaging when you have more equity in your home.
Charlotte Nelson from Moneyfacts believes that you should think carefully before committing to a long-term deal. She adds: "A 10-year fixed rate mortgage will need a lot of consideration… But perhaps now is the time to make a long-term commitment.”
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Source: What House?
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