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Could 10 year fixed rate mortgages be the future?

Could 10-year fixed rate mortgages be the future?

By Maurice Shasha  //  Tue 22nd January 2019
When deciding whether to take out a 10-year fixed rate mortgage, think about three things...
With ongoing uncertainty over Brexit, and increases in the Bank of England base rate, one trend for 2019 could be the growth in fixed-rate mortgages that last as long as a decade.

Competitively priced five-year fixed deals became increasingly popular in 2018. However, the past year has seen a growing number of institutions offering the longer, 10-year fixed rates, which were previously only available from a minority of lenders.

Currently 14 providers, including the Halifax, Lloyds Bank and Yorkshire Building Society, have come on board increasing competition in the market and meaning better rates can be found, says a report on the Which? website.

According to Which? “Greater competition usually means better rates, and that’s largely been the case in the 10-year market – with rates at most loan-to-value (LTV) levels slightly cheaper than a year ago. Indeed, at the popular LTVs of 75% and 80%, the cheapest introductory rates dropped marginally in 2018, despite an increase in the Bank of England’s base rate.”

However, this benefit doesn’t extend to people with small deposits; fixed rate 10-year deals at 95% LTV are hard to find.

What to look out for with a 10-year fixed rate mortgage

These deals are suitable for people who don’t plan to move or repay the loan during the 10-year period, because they can involve hefty early repayment fees (ERC).

These fees can be as high as 5% if you pay off the mortgage during the first two years, meaning that on a loan of £200,000, your fee would be £10,000, with additional admin charges on top of this.

Some lenders also calculate the ERC as a percentage of the initial loan rather than the outstanding balance, again potentially increasing costs if you wish to sell your home or switch lender further down the line. High ERCs are something to be wary of with five-year deals too.

Choosing the best mortgage term for you

When deciding whether to take out a 10-year fixed rate mortgage, think about three things:

  • when you plan to move home 
  • your personal circumstances – whether you can afford a repayment fee if necessary 
  • how comfortable you are with the element of risk involved 

While rates on two-year fixes are currently rising, they are more sensible if you may plan to move. You just need to be proactive in searching out the best deal as your fixed rate period ends, before you’re transferred to your lender’s standard variable rate.

If, however, you feel your new home will be a long-term one, a 10-year fix will protect you against fluctuations in the Bank of England base rate.

The important thing is to research the market and do your sums about the potential costs of each option.

Read more about this story in Which?

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