Nottingham Building Society has launched a seven-year fixed rate loan for borrowers with a 20 per cent deposit.
The product comes with an interest rate of 2.94 per cent fixed until 1 May 2023 at up to 80 per cent loan-to-value (LTV). A £199 booking fee and an arrangement fee of £800 is applicable.
The mortgage comes with a free basic valuation and an assisted legal package for re-mortgage customers. Extra payments of up to 10 per cent can be made each year, with a minimum of £500, and the mortgage is portable.
Last month, the lender (known as The Nottingham) announced that it will adopt the KFI plus illustration initially before moving to an ESIS (European Standardised Information Sheet) ahead of the 2019 Mortgage Credit Directive deadline.
The Nottingham will not be offering foreign currency mortgages under the new requirements, but will be accepting consumer buy-to-let and investment property loans.
Provider view
Jon Cartlidge, senior product manager at The Nottingham, said: “Our new seven-year fixed-rate mortgage is open to everyone, which makes it unique in the current market. Since the recession there has been a long period when wages have fallen as inflation has outpaced average earnings.
“Our new seven-year fixed-rate mortgage is designed to ease the burden on borrowers with a tight budget. It will allow them to plan their finances ahead of any future changes in the base rate.”
Adviser view
Dominic Basilea, director of Hertfordshire-based Aqua Wealth Management, said: “The problem with seven-year fixes is that rates tend to be too high. I would say the rate here is very competitive – considering the average rate for a five-year fix is around the 2.6 per cent mark. The booking and arrangement fees are also on point.
“Earlier repayment charges are usually an issue when it comes to fixed-rate mortgages. They tend to last for the duration of the fixed term, so those who would want to move are likely to get burnt.”
He added: “Having the stability of a longer-term fixed-rate product is likely to suit first-time buyers and those who do not have a substantial cash flow because any increase in rates will have a significant impact on their finance. I would want to make sure that my clients would be able to afford the monthly rate.”
Charges
£199 booking fee and an arrangement fee of £800
Verdict
A lot has been said about the proliferation of two, five and even 10-year fixes, but seven-year fixes are less common. Here, the interest rate is good given the length of the deal. The fee applicable is also particularly reasonable. The adviser is quite right to suggest that the product is likely to benefit those who are not looking to sell and move within the fixed term because of the early repayment charges. Knowing the value of monthly repayments is a boon for those on a budget.
Whether other lenders will follow in The Nottingham’s footsteps and launch a similarly competitive seven-year fix remains to be seen. With the Bank of England suggesting that base rates are unlikely to increase at a time of heightened market volatility and uncertainty, it will be interesting to see if borrowers take the plunge and opt for a cheaper short-term fix over a more expensive yet more assured long-term fix.
