Shrink­ing pre­mium for long-term mort­gages

The Sunday Telegraph - Money & Business - - Fame & fortune - Telegraph Money Sam Barker

The price dif­fer­ence be­tween two-year and 10-year fixed-rate mort­gages is the small­est in al­most a decade, rekin­dling calls for bor­row­ers to con­sider longert­erm home loans.

A mort­gage taken out last month with a 25pc de­posit would have cost just 1.04 per­cent­age points more when fixed for 10 years rather than two, ac­cord­ing to the mort­gage bro­ker Pri­vate Fi­nance.

This is the small­est gap since De­cem­ber 2008. Ten-year fixed-rate mort­gages al­most van­ished be­tween Septem­ber 2009 and Au­gust 2014.

Cur­rently, Bri­tish con­sumers pre­fer short-term mort­gages of two and three-year terms, and mort­gage lenders’ deals re­flect this. Data from Money­facts, the an­a­lyst, shows that there were 1,221 two-year fixed rates and 390 three-year deals on the mar­ket in May 2018. By com­par­i­son there were only 114 10-year fixed rates.

Pre­vi­ous anal­y­sis has shown that five-year fixed-rate mort­gages are be­com­ing more pop­u­lar. Money­facts data shows there were 1,168 such deals avail­able in May 2018. In May 2016 there were just 879.

Char­lotte Nel­son of Money­facts said: “Lenders are clearly tar­get­ing bor­row­ers who fear Bank Rate rises, with not only lower rates but with an in­crease in the choice avail­able.”

Tak­ing out a 10-year fixed-rate mort­gage now would in­su­late bor­row­ers from fu­ture rises in the Bank of Eng­land’s of­fi­cial rate un­til 2028. The Bank has hinted that it could raise rates this year. Its Mon­e­tary Pol­icy Com­mit­tee voted not to in­crease them in May but will vote again on June 22.

But Ray Boul­ger of John Char­col, a mort­gage bro­ker, said five-year deals were likely to re­main more pop­u­lar, partly be­cause bor­row­ers’ cir­cum­stances could change greatly over a decade.

Early re­pay­ment charges on long deals can also be crip­pling. Even if a 10-year mort­gage bor­rower made full pay­ments every month for nine years, try­ing to re­pay the re­main­ing year early could be costly.

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