One mortgage for life: Home loans lasting 40 years to be launched

Mortgages lasting 40 years are being launched, raising the prospect of home owners never needing to find a new deal.

Broker and lender Habito aims to shake up the mortgage market. The new products, with fixed-rate terms ranging from 10 years up to 40 years, will be available to first-time buyers, home movers and people looking to re-mortgage in England and Wales.

The “Habito One” deals will be available from Monday March 15.

Products will be available to borrowers with deposits as low as 10% and Habito plans to add 5% deposit deals to its range in early summer.

Habito said it will not make early repayment charges (ERCs) or exit fees for the duration of the mortgages.

This will enable customers to lock into a particular rate, giving them certainty over their payments and safeguarding against future possible interest rate rises, while still having the flexibility to switch or move home.

Monthly repayments will remain the same throughout the lifetime of the mortgage, removing the cycle of re-mortgaging every two to five years as well as the fees that often come with taking out a new mortgage.

Daniel Hegarty, founder and CEO of Habito said mortgages currently available “are remnants of a different age” and he said Habito One “permanently and profoundly alters the landscape of UK mortgages”.

He added: “The vast majority of us on a mortgage that’s fixed for two to five years are effectively trapped in a system that doesn’t fit our financial future or our home-buying habits.

“Worse still it demands that we continually switch to a new product before we get stung by a higher rate. This cycle is costly, time consuming and repetitive – roughly £1,000 each time up to 10 times over the length of the mortgage.”

Habito said that while the long-term fixed rate mortgage model is new for the UK, it is more commonplace in some other countries.

Its new deals come with a £1,995 product fee. Customers only pay product fees when they take a Habito One mortgage or increase their borrowing.

Rates start at 2.99%, fixed for the full contractual term of the mortgage.

A deal at 2.99% will be available for people with a 40% deposit locking into a mortgage term of up to 15 years. If borrowers with this deposit size wanted to lock in for a longer period of 40 years, rates on offer would be higher, at 4.20%.

A borrower with a 10% deposit could get a Habito One mortgage at 4.39% for up to 15 years. With a 40-year deal, the rate would potentially be 5.35%.

Habito said its mortgage documents carry a “clear and simple” kitemark from Fairer Finance, meaning they are free from jargon.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said “It’s great to see Habito launch mortgages to meet the demand from borrowers who wish to lock into rate for the longer term and perhaps do not want to move their mortgage too often.

“Further good news is that they plan to roll out 95% loan-to-value mortgages in the summer, an area of the market that needs a significant boost.”

Ms Springall said there are more than 100 mortgage products on the market currently which last for a decade.

She said: “Most of the present deals out there tie in customers with early repayment charges for the duration of the deal, but there are some from TSB which will permit borrowers to exit after the first five years.”

Ms Springall continued: “It’s always wise for borrowers to review their mortgage as they could find a better rate elsewhere and depending on the deal, up-front costs to switch may not be too much to pay out on if the interest rate on the new mortgage is more competitive.

“At the moment, the average 10-year fixed mortgage rate is 2.84% and the lowest 10-year fixed deal comes from Barclays at 1.99% at 60% loan-to-value with a £999 fee.

“It will be interesting to see the uptake for these new mortgages and whether alternative lenders will launch longer-term mortgages in the current market to meet demand.”