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Should fix your mortgage rate for ten years?
Yorkshire Building Society has launched a market-leading ten-year fixed rate mortgage deal.
Now you can fix your mortgage rate at 3.99% until 2023 if you have at least a 25% deposit or the equivalent equity in your home for a remortgage. And you won’t have to pay through the nose for this leading rate either, as the deal comes with just a £130 processing fee.
The offer is one of three available for this price at the moment but the only one available with such a small fee.
Leeds Building Society also has a ten-year fixed rate mortgage at 3.99% on a 75% LTV with an eye-watering fee of £1,999. HSBC offers the same rate to borrowers with a 40% deposit but for a smaller charge of £999.
According to financial data website Moneyfacts, ten-year deals are the longest available fixes. They have been increasing, but there are only 25 of them available today – which isn’t that many, compared to shorter two-year (1,092) or five-year fixes (621).
But should you really consider locking into a deal for a decade?
[Related link: An unusual way to sell your home]
Why you should
There are several reasons why you might be happy spending ten years with the same mortgage.
For a start you can save on the cost of remortgaging. With a two-year deal you might have to remortgage five times in ten years each time the initial offer ends. That means shelling out five times on all the fees associated with getting a new mortgage - not to mention the hassle of the paperwork five times over.
But you also get peace of mind from a longer deal that other variable rate or shorter fixes just can’t provide. Knowing that what you pay each month will remain unchanged for ten years is pretty reassuring and is also helpful when it comes to budgeting and financial planning for the future.
On a £150,000 repayment mortgage taken out over 25 years, monthly repayments would be just £791 a month, every month, for ten years before you need to rethink your deal.
Another good reason to go for a longer lasting fixed rate deal is to lock into the record low mortgage rates around at the moment. The Funding for Lending Scheme has been widely credited with helping rates stay so low but even though this scheme has been extended, the low rates can’t last forever. So while there may be cheaper deals that pop up after you have locked in, over the long term you will probably be better off when rates creep up later on.
Why you shouldn’t
That said there are reasons why some borrowers don’t flock to longer lasting deals.
First off the early repayment charges (ERCs) can be pretty punishing.
ERCs are penalties you are liable for should you overpay by too much, switch to another provider or choose to pay your mortgage back early.
The Yorkshire deal comes with these prickly charges. This is how they breakdown over the ten-year period up until 2023:
Early Repayment Charge | Date charge applies until |
7% of amount owing | 30th June 2016 |
6% | 30th June 2018 |
4% | 30th June 2020 |
2% | 30th June 2022 |
1% | 30th June 2023 |
So if three years down the line your circumstances change you would face a charge of £8,506.68 on the remaining balance of a £150,000 mortgage (which would be £121,524). That said you can make penalty-free overpayments of up to 10% of the outstanding loan per year.
ERCs can be found on a variety of mortgage deals and are especially damaging if you want to switch onto a new mortgage that might be better for you or if your circumstances change – which is very likely over ten years.
After all who knows what you will be doing in ten years and whether it will revolve around home ownership and a mortgage. Your work might take you abroad for example.
If you don’t like the sound of a penalty for cutting loose your mortgage deal, take a look at this article: The best mortgages with no early repayment charges.
The other key element that might prevent you from pouncing on a ten-year fix is the price. You can get much cheaper mortgages at the moment.
For example, a two-year fixed rate deal from Leek United Building Society is available for 2.29% on the same 75% loan-to-value but with a fee of £995.
That would make your repayments £675 on a £150,000 mortgage taken out over 25 years. That’s £116 cheaper than the ten-year deal from Yorkshire Building Society.
[Related link: Why you should remortgage now]
Top ten-year fixed rate deals
If you have weighed up the pros and cons and are still interested in a mortgage fixed for a decade here are a few of the best rates.
Lender | Rate | Max LTV | Fee | ERCs |
3.99% (Fixed to 31/08/2023) | 60% | £999 | To 31/8/23: starts at 10% and decreases by one percentage point each year to 1% in final year. | |
3.99% (Fixed to 30/06/2023) | 75% | £1,999 | To 30/6/23: starts at 6% and decreases to 2% by penultimate year. Plus fixed redemption admin fee £134 and fixed deeds fee £65 (not payable for full mortgage term). | |
3.99% (Fixed to 30/06/2023) | 75% | £130 | To 30/6/23: starts at 7% and decreases to 1% by final year Plus deferred arrangement fee of £90. | |
4.19% (Fixed to 31/08/2023) | 60% | £0 | To 31/8/23: starts at 10% and decreases by one percentage point each year to 1% in final year. | |
4.19% (Fixed to 30/06/2023) | 80% | £999 | To 30/6/23: starts at 6% and decreases to 2% by penultimate year. Plus fixed redemption admin fee of £134 and fixed deeds fee of £65 (not payable for full mortgage term). |
Source: Moneyfacts
The middle ground
If you don’t think you can commit to such a long mortgage there may be some middle ground.
According to Moneyfacts the difference in average rates on a two-year fix compared to a five-year fix on a 75% LTV is just 0.04% and on a 60% LTV a five-year fix is actually cheaper on average.
So you can get two-year prices on a five-year deal if you shop around!
The Moneyfacts research reveals that the number of five-year fixed-rate mortgages launched in the past year has increased by 73%, whereas the traditionally popular two-year fixes have only increased by 33%.
The latest five-year fixed rate market leader is from HSBC for those with a 40% deposit, priced at just 2.49% with a £1,999 fee. Below are other top deals across a range of loan-to-values.
Top five-year fixed rate deals
Lender | Rate Details | Max | Fee | ERCs |
2.49% (Fixed to 31/08/2018) | 60% | £1,999 | To 31/08/208: starts at 5% and decreases by one percentage point each year to 1% in final year. | |
2.64% | 65% | £1,399 | Each year: 3% in first year then decreases to 2% in following four years. | |
2.79% (Fixed to 30/06/2018) | 70% | £1,495 | To 30/06/2018: starts at 5% and decreases to 2% in final year. | |
2.84% (Fixed to 31/07/2018) | 75% | £1,675 | To 31/07/2018: starts at 5% and decreases to 3% in final year. | |
2.99% (Fixed to 31/05/2018) | 80% | £1,094 | To 31/05/2018 starts at 5% and decreases to 3% in final year. | |
3.69% (Fixed to 30/06/2018) | 85% | £999 | To 30/06/2018: starts at 5% and decreases by one percentage point each year to 1% in final year. | |
4.19% | 90% | £1,499 | Each year: 3% in first year then decreases to 2% in following four years. | |
5.49% (Fixed to 31/03/2018) | 95% | £200 | 3% until 31/03/2018. |
Source: Moneyfacts
[Related link: Compare the latest mortgage rates and get free, expert mortgage advice]
