Any fixed rate mortgage beyond the medium term of five-years would be deemed to be a longer term home loan, according to our experts.
At the moment the longest a lender offers to fix a mortgage rate for is 10 years, although we have seen deals in the past enabling a fix for as long as 25 years or even the life of the loan.
David Hollingworth, associate director for communications at London & Country Mortgages, says the clear attraction of this type of loan is the security that a long-term fixed deal offers. Like any fixed rate, Mr Hollingworth says it means that the payments will remain stable during that period.
That could be especially attractive at the moment with the base rate at a record low and therefore expected to increase in the future, he notes. The downside can be that most deals will lock the borrower in with early repayment charges throughout the fixed rate period.
Although most products are portable, Mr Hollingworth adds there is no guarantee that the borrower will be able to meet the lender’s criteria at the time they need to port the deal or what rates may be on offer on any top up borrowing.
Despite the low base rate in the current climate we are seeing rates go up as well as down so locking in now is no guarantee that you may not miss out on a cheaper rate in the future, warns Dale Jannels, managing director of Atom.
Therefore, he says a long-term fixed rate could be a slight risk even in the current environment of record low rates for this type of deal as no one can predict what is going to happen over the next couple of years, let alone a longer term.
Ultimately he downside is that if rates come down further, then Mr Jannels points out the customer could be paying more than the general market and should they wish to change mortgages, there will be early repayment charges applicable.
But Martin Reynolds, chief executive of Simplybiz Mortgages, says setting aside the view on rates the main downside he can see is that there is not always the flexibility with this type of loan that a client may require if there are changes in their own circumstances.
Fixing, for example, for 10 years dependent upon the age of the client could see them move through different life cycles, such as marriage, children, etc, he points out.
If a couple were to divorce, a long term mortgage may not give a couple the flexibility they want to split the property they have together.
That is why it is vital that advisers understand and explain the finer details of how these deals can be exited to their clients.
