Yahoo Finance Why you should get a 10-year mortgage now
Brexit, a new American administration and a year of potential political upheaval in Europe mean that 2017 – and the years beyond – offer little certainty.
But borrowers worried about the potential effect on interest rates can lock in decent mortgage rates to see them securely through the next decade. According to rate scrutineers at Moneyfacts, three years ago there were only eight 10-year fixed-rate home loans available, but now there are 124. The average 10-year mortgage rate has fallen by more than a percentage point over the same period, from 4.23pc in January 2014 to just 3.2pc today.
If you’re borrowing 60pc or less of the property value, you can fix your rate for 10 years at 2.49pc with First Direct. The fee-free deal allows unlimited overpayments, provided that the entire mortgage is not cleared within the fixed period.
Barclays charges slightly more at 2.59pc with a £999 fee, and permits borrowers to make overpayments of up to 10pc of the outstanding loan amount each year. Santander also offers a 10-year fix at 2.59pc with a £999 fee.
The rates are higher for borrowers with smaller deposits but they’re still competitive. First Direct charges 2.89pc for 80pc loans with no fees, while HSBC charges 2.94pc.
By comparison, best-buy rates for two-year fixes are currently between 1.16pc and 1.19pc for 40pc loans, while five year fixes start at 1.78pc.
Historically borrowers have shied away from longer-term fixes for fear of missing out on better rates that might become available later on. But with Bank Rate at an all-time low of 0.25pc, you shouldn’t be too concerned about more competitive rates coming on to the market. However, there are still several factors to consider before you lock into a long-term mortgage rate.
The big appeal of a 10-year fixed rate is you can sit back and know for certain what your mortgage payments will be for the next decade. This can allow you to budget and plan your finances, safe in the knowledge that your mortgage payments won’t rise regardless of what happens in the wider economy.
Another factor that makes a 10-year fix attractive is that you won’t have to go through all the hassle of remortgaging again in two or five years. This means you won’t have to worry about your credit record, the amount of equity in your home, or passing lenders’ strict affordability assessments.
But Mark Harris, chief executive of mortgage broker SPF Private Clients, said the biggest issue with 10-year fixes was the lengthy lock-in period. Fixed-rate mortgages, of any length, come with early redemption charges if you want to exit the deal during the fixed period.
“Circumstances change – a decade is a long time to know for certain what you will be doing,” he said. “Most 10-year fixes have early redemption charges for the entire length of the fix so it can be expensive to get out of the mortgage early.”
Divorce, death, illness or the need to move for work or to be nearer family can all be triggers to prompt an unforeseen move.
The level of exit fees varies. First Direct’s best buy 10-year fix charges 3pc of the original balance in the first year, followed by 2pc for each subsequent year during the fixed term. But the fees can be much higher with other lenders.
“Barclays also has a 10-year fix pegged at 2.59pc, with £999 fee, but charges are 6pc for the first five years, followed by 3pc for the next five years,” said Jonathan Harris, director of mortgage broker Anderson Harris. “Santander has a 10-year fix pegged at 2.59pc with £999 fee but its penalties are 6pc of the outstanding balance for the full 10 years. Someone taking out a £200,000 mortgage on this deal who wanted to get out of it after six years would pay £12,000, compared with £4,000 if they had opted for First Direct.”
TSB offers a range of “Fix and Flex” 10-year mortgages where you can fix your rate for 10 years and can leave fee-free after five years – but you’ll pay a higher rate. TSB’s Fix and Flex has a rate of 2.94pc for borrowers with a 40pc deposit, 2.99pc for 25pc down-payments and 3.33pc for 20pc deposits.
In theory, borrowers on all the 10-year fixed rates currently on the market should be able to switch or “port” their mortgage to a new property if they move house.
In practice, moving your mortgage means reapplying for it, with the lender reassessing the loan’s affordability. So, if you’ve had a cut in income or increase in outgoings (because you’ve had children, for example), you might find your request to transfer your mortgage turned down.
David Hollingworth, of broker London & Country, said problems with porting meant 10-year deals were better suited to some borrowers than others.
“For example, they could suit a homeowner where kids have flown the nest and they simply want to lock their rate in for the last 10 years of their mortgage.
“Equally a young family making the move to their ‘forever home’ may like the idea of knowing their mortgage budget over the longer term,” he said.
“However, it may not work so well for a first-time buyer who only sees their time in a new flat as being a stepping stone.”
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