Mortgage blog: The pros and cons of fixing your mortgage for ten years
With interest rates set to rise in 2015, increasing numbers of borrowers are considering fixed-rate mortgages in order to provide security against a base rate rise. Now, leading lenders and the Bank of England are encouraging borrowers to fix their mortgage for the long term - up to ten years in some cases.
Other countries let their borrowers fix their mortgage for up to 40 years. So, what are the pros and cons of fixing your home loan for ten years?
Ten-year fixed rates give you long-term peace of mind
Long-term fixed-rate mortgages have been popular in France, Denmark and the USA for years. However, they have never taken off in the UK. Nationwide and Halifax briefly offered 25-year fixes in 2007 while the Manchester Building Society offered a similar deal in 2012 - although they were not popular with borrowers.
Experts believe that the UK mortgage market would benefit from more long-term fixed deals. Richard Sharp, an external member of the Bank's Financial Policy Committee, says: "Certainly, the structure of the UK would have lower risk associated with the housing market if more mortgages were fixed, and fixed for longer."
According to financial information website Moneyfacts, ten-year deals are the longest fixes currently available to UK borrowers and there are only 20 of them available today. One of the leading deals is a 4.49% ten-year fix from the Leeds Building Society. This has a £199 fee and is available to 65% loan-to-value. But should you choose a long-term fixed rate?
Keith Osborne, editor of whathouse.com, says: "A ten-year fixed rate will give you long-term peace of mind and the ability to carefully budget for years. It also saves you going through the hassle of remortgaging every two or three years. With interest rates at record lows it is also a great time to be committing to a fixed-rate deal."
Penalties can be a problem if you fancy a long-term fix
While there are many advantages to a long-term fixed rate there are also many reasons why you should think carefully before committing to such a deal.
The main negative factor for a ten-year fixed rate is that most tend to come with significant early repayment charges (ERCs). It is not unusual for you to have to pay somewhere between 4% and 7% of the amount that you repay if you decide to pay back some or all your mortgage within the fixed-rate period.
Osborne adds: "Many lenders will allow you to ‘port' your deal if you move home during the fixed period. However, they will not automatically agree a new mortgage and will instead apply their lending criteria at that time. This means that if your circumstances have changed they may not be prepared to offer you a new mortgage and then you face paying the early repayment charges."
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