Shrinking premium for long-term mortgages
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.