Brits want a top-10 hit
LONG-TERM FIXED MORTGAGES
AS INFLATION and interest rates rise, a growing number of homeowners are protecting themselves by taking out 10-year fixed-rate mortgages.
Locking into a long-term deal today looks tempting, with the Bank of England expected to hike interest rates several more times this year.
First Direct – part of HSBC – has just launched a new 10-year fix in response to growing demand, adding to the choice of deals.
The big advantage is that homeowners know exactly how much they have to pay for their mortgage right through to 2032, regardless of what happens to interest rates.
It looks tempting as base rates have increased five times since December to today’s 1.25 per cent, and analysts believe they could top 2 per cent by the end of 2022.
First Direct’s 10-year fix starts at
3.34 per cent for somebody borrowing up to 60 per cent of their property’s value, with a £490 product fee (3.49 per cent with no fee).
Rates are higher for those with smaller deposits. For example, at 80 per cent loan-to-value, borrowers pay 3.59 per cent with a £490 fee (3.69 per cent with no fee).
The deal is only available online or by
phone, rather than through brokers.
The digital bank’s chief executive Chris Pitt said: “It should provide long-term peace of mind while soaring house prices and rising utility bills show no signs of abating.”
Barclays and Lloyds Bank already offer 10-year fixed mortgages, but the new offering has shot straight on to the best-buy tables. Moneyfacts content writer Michael Brown said: “The other 10-year fix on our chart is from Halifax. It is only available at a higher 75 per cent LTV and charges 3.38 per cent with a product fee of £995. Borrowers also get £250 cashback.”
Both rates are well below the average 10-year fixed rate, which currently stands at 3.97 per cent.the First Direct and
Halifax 10-year deals are scarcely more expensive than today’s best buy five-year fixes.
The Post Office currently charges 3.09 per cent up to 75 per cent LTV, with a larger £1,495 fee.
Barclays charges 3.14 per cent for a two-year fixed rate at 70 per cent LTV, with a hefty £1,999 product fee.
Two-year fixes are usually cheaper than five and 10-year rates.this suggests lenders believe interest rates will spike over the next year, then settle down.
Ten-year fixes also save the cost and bother of remortgaging every few years, and paying product and valuation fees every time.
The downside is that if you change your mind and switch deals, you face paying early redemption charges (ERCS). First Direct will charge 3 per cent of your original mortgage amount if you switch during year one, falling to 2 per cent thereafter.
This would cost somebody with a £400,000 mortgage £12,000 for switching in year one. Some lenders charge ERCS of up to 6 per cent.
Applicants should also check whether their lender allows “porting”, which means taking your mortgage with you if moving home, said David Hollingworth, a broker at L&C Mortgages.
“Long-term fixes could give you big savings if interest rates shoot up and stay high, but nobody can predict the future in that way. It’s a lengthy commitment though,” he added.
As with every mortgage deal, there are pros and cons. But 10-year fixes look tempting for those who can last the course.