Ten-year fixed-rate mortgage ‘is now incredible value’
Locking into a 10-year fixed-rate mortgage used to come at a considerable cost but as interest rates on shorter-term home loans have edged up, the price of a decade’s worth of certainty has fallen.
This week the best two-year fixed-rate mortgages had a rate of 2.54% for those borrowing 60% of the property’s value, while five-year deals were at 2.64% and the best 10-year rate was 2.73%.
“The margins between two-, five- and 10-year fixes have fallen, so it has become a much more favourable environment for people to consider a long-term deal,” says David Hollingworth of the brokers L&C Mortgages. “They’re not having to pay as big a premium for it.”
On a mortgage of £180,000 over 20 years the monthly price difference between the cheapest two-year deal and the cheapest 10-year deal is £16.78. Over the first two years, that means paying a total of £403 more. But in year three, you could be better off. Hollingworth says he can see fixed rates “going through 3% sooner rather than later”. They could go as high as 4% by the end of the year.
Mark Harris, the chief executive of the mortgage broker SPF Private Clients, says there is currently “some incredible value” on offer in 10-year mortgages. However, he adds: “It is important not to make your decision based solely on the rate because it could turn out to be an expensive mistake.”
Fixed-rate mortgages generally have early repayment charges (ERCs) that have to be paid if you want to pay off the loan early. On the cheapest 10-year fixed-rate, available from Lloyds for those remortgaging and Halifax for homebuyers, the ERC is 6% of the loan until 2027. It then falls each year so that in the final year of the fixed-rate period it is 1%.
While you may have no intention of repaying the mortgage earlier, it might not necessarily be your choice – Hollingworth points out that if you move house, you might find you no longer qualify for the loan and need to repay it and take another.
However, at a time of rising costs, knowing how much your biggest monthly outlay will be for the foreseeable future has an appeal. Jonathan Harris, the managing director of Forensic Property Finance, says borrowers are choosing longer fixes in an attempt to ride out some of the considerable economic uncertainty, including rising energy bills.
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