Longer-term fixes boom ahead of expected rate hike

Longer-term fixes boom ahead of expected rate hike

Lenders are bringing to market a bonanza of longer-term fixed rate mortgage deals ahead of expectations that record low interest rates will finally be increased later this year, with the number of decade-long deals up almost 10-fold in the past year.

According to data from Moneyfacts, there are now 77 mortgages on the market with a rate fixed for a decade, compared to just eight in January 2014. The number of 10-year deals has spiked particularly in the last few months, with 22 offers in October alone.

Shorter-term fixed rate mortgages have been the favoured option for borrowers for many years as rates have been in prolonged stasis, but Moneyfacts said competition leading to historic low rates means that fixing for longer periods has become an increasingly attractive option.

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Interest rates being offered are falling, with the average rate down from 4.23 per cent in January 2014 to the lowest average 10-year fixed rate deal ever, at just 4.17 per cent.

Today (7 January), Barclays claimed to have launched the single lowest ever rate, with a 10-year fixed rate at 2.99 per cent, down from 3.45 per cent. Like many, the loan is only available up to 60 per cent loan-to-value, excluding lower-income and most first-time buyers.

The data coincides with increasing expectations that rates will rise at some point this year, following a report from the Bank of England’s Monetary Policy Committee in November which forecast a vote to increase rates from their current low of 0.5 per cent in October this year.

In August, the interest-rate setting Monetary Policy Committee pledged to keep interest rates at their current level of 0.5 per cent until unemployment fell below 7 per cent.

According to a study undertaken by Barclays Bank and the Centre for Economics and Business Research, published earlier this week by FTAdviser sister title Financial Times, found that borrowers are split on the likelihood of a rise this year.

Researchers surveyed 2,000 UK homeowners, half of which had a variable rate mortgage, and found close to half of respondents holding a variable rate mortgage do not expect or are not sure that their repayments will rise this year.

Sylvia Waycot, editor at Moneyfacts, said that lenders seem happy to jump on the 10-year fixed rate bandwagon.

“This is great news for borrowers as they are able to fix their repayments for a decade at a time, which removes the fear of what happens if interest rates rise.

“However, as Bank of England base rate is currently sitting at an historic low, and the only talk is of when it should rise rather than drop, this is less likely to be a concern for most people fixing.”

Additional reporting by Ashley Wassall