Record low 10-year fixed rates offer security...but beware the pitfalls

Posted 27 July 2016 by Nick Parkhouse

The new low rates on very long-term mortgages look tempting, but bear in mind there could be disadvantages to committing to one of these deals...

Over the past few months, long-term fixed rates have become more and more popular. Ten-year fixes are now commonplace, and another record-breaking deal has been launched by one of the UK's leading lenders.

While the popularity of long-term fixed deals grows, there are disadvantages to these products.

10-year fixed rates offer long-term security

The Yorkshire Building Society has become the latest lender to offer a market leading ten-year fixed-rate mortgage. The mutual has unveiled a 2.89% ten-year fix, the most competitive deal of its type for borrowers wanting a 75% loan-to-value mortgage. There is an £845 product fee.

Rachel Springall, from financial analysts Moneyfacts, says: "In times of uncertainty a decade-long fixed mortgage will provide borrowers with a long-term option to secure their monthly mortgage payments. Borrowers sitting on a variable rate may well be paying over the odds for their mortgage, so fixing to a new rate right now could save customers cash by reducing their monthly mortgage repayments."

With the UK's economic future uncertain, borrowers have been keen to benefit from the long-term security that a 10-year fixed rate offers. Mortgage expert Andrew Montlake said: "Ten-year fixes are now available from a pretty astonishing 2.39% from Coventry Building Society, which is extraordinarily competitive. Falling rates on longer-term fixes could represent a sea-change in their popularity, especially given the prevailing landscape of uncertainty.

"Longer-term fixes are attractive to borrowers looking to remortgage who have a good level of equity in their property and have no expectation of moving over that time period. Also, those purchasing who have a high deposit on a long-term family home or trading down for a last move, will also be tempted by the additional level of security and peace of mind these longer-term fixes bring."

Why 10-year fixed-rate mortgages are not suitable for everyone

While 10-year deals offer security, there are pitfalls to taking out these products. One of the major downsides to a long-term deal is that you will normally have to pay significant early repayment charges if you come out of the mortgage early.

Although most 10-year fixed rates are portable, meaning you can take the remainder of the mortgage with you if you decide to move house before the end of the ten-year term, there will be conditions attached. You should remember that mortgages are never 'automatically' portable onto a new property, and that you will still have to go through underwriting and affordability checks when you move home.

It is also highly likely that your circumstances will change within ten years. If you are a first-time buyer then you may well move after a few years meaning you could be faced with charges if, for example, you decide to buy with a new partner.

Mortgage expert Mark Harris says: "If you fix for longer than you are absolutely sure about you may find you have to pay a hefty early redemption charge to get out of the mortgage during the fixed term. For those borrowers, shorter-term fixes make more sense."

 

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