After years of good fixed-rate deals being locked in for just a few years, typically two or five, we are now seeing a flux of ten-year mortgages with favourable fixed interest rates on the market.
In January 2020 it was reported that getting on for 20 lenders were offering such products and there were over 150 to choose from. One lender is even offering a 15-year fixed-rate mortgage, the first since the financial crash in 2008.
Compared to two- and five-year deals, the number of ten-year fixed-rate deals available is still relatively low, but the signs are that availability is growing. One reason for this may be that the market is saturated with shorter-term fixed-rate deals.
The main driver for longer-term deals at lower rates of interest is competition among mortgage lenders. The average interest rate for a ten-year deal in November 2019 was reported to be 2.76%, down from 3.08% two years earlier.
What are the pros and cons of ten-year mortgages?
One advantage is that if you fix your mortgage for a long term, you save on fees compared to remortgaging every two years. You also reduce the number of credit checks that will be carried out.
We’re entering a period of uncertainty with regard to the UK economy, and it may be that lenders change their affordability criteria. A ten-year deal means you won’t be affected by that.
On the downside, even on the best ten-year deal, the rate of interest, and so your payments, will initially be higher. If interest rates don’t rise, you could pay more than on a series of shorter-term deals.
If you lock into a ten-year fix with a high LTV, then you miss out on the more favourable rates that become available as your LTV drops. The cost of getting out of a ten-year deal early can run to thousands of pounds.
While ten-year mortgage deals can be had for as little as 2.2%, that offer is restricted to 60% LTV deals, meaning you’d need a 40% deposit to qualify. Only a handful of products are available at LTV 75% and above. At 90% and above, the rate on a shorter-term deal would be better.
What’s the best option?
Getting locked in to a long-term fixed-rate deal could either save you a lot of money or cost you dearly, depending on how the Bank of England base rate, against which mortgage rates are generally pegged, performs.
The best option will depend on your personal circumstances. There are certain things to take into account whenever you are looking for a mortgage, such as remembering to factor in the charges, making sure you understand early repayment fees and working out whether you’d benefit from waiting a little longer and saving up a bigger deposit.
It’s a good idea to talk things over with an independent mortgage advisor – as well as expert advice, they have a network of contacts, giving them access to the best deals on the market. Get in touch with Mortgagemove today to discuss your options.