MortgagesJul 8 2016

What you must know about 10-year fixed rate mortgages

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What you must know about 10-year fixed rate mortgages

Early repayment catches have been cited as the only drawback to an emerging trend for cut price, decade-long fixed rate mortgages.

Yesterday (6 July) HSBC has launched a 10-year fix, priced at 2.79 per cent for purchases and remortgages for up to 70 per cent loan-to-value, with no product fee. In terms of overpayments, they are up to 10 per cent of the mortgage balance per annum.

The launch came with research among more than 1,500 UK homeowners and current house-hunters at the end of May which found almost three quarters would consider fixing their mortgage for 10 years.

However, the day before, Coventry Building Society pipped HSBC to the top of the best buy tables post by announcing the lowest ever 10-year fixed rate at 2.39 per cent, for deals at 50 per cent LTV.

Available from today (8 July), the product comes with a fee of £999 and those looking to redeem early will pay 5 per cent of the mortgage balance during the first two years, 3 per cent for the next three years and 1 per cent for the remaining term.

Also launching today is West Bromwich Building Society’s 10-year deal, priced at 2.79 per cent for 65 per cent LTV.

It allows overpayments of up to £1,000 and early repayment charges set at 5 per cent of the amount repaid until 30 November 2021, 3 per cent until 30 November 2024 and 1 per cent until 30 November 2026, plus interest to the end of the month.

Finally, Barclays announced a new 10-year fix at 60 per cent LTV from today (8 July), priced at 2.79 per cent, with a £999 fee.

Up until this week, the lowest 10-year fixed rate currently available was Leeds Building Society’s 2.84 per cent deal at 65 per cent LTV, launched back in March with a fee of £1,499.

A month before that, TSB offered a 10-year fix at to 60 per cent LTV, priced slightly higher at 3.19 per cent, but with a fee of £265.

Islay Robinson, chief executive at Enness Private Clients, warned borrowers choosing these deals should be careful, as while they are cheap, they are not flexible.

“So if circumstances are likely to change, for example, a job change, more children or a house move, long-term fixed rates may not be the best option,” he stated.

“They also don’t offer interest-only mortgages, and are restricted to those with large deposits (at least 50 per cent in the Coventry’s case).”

Nick Green, a broker at Alternative Estates & Financial Services, said while these low and long rates are great, the only problem is tying clients into a product for that duration.

He said: “Many moons ago there were rates fixed for 10 years with a five-year get out. I did loads of them, as rates came down below the fix, so we re-mortgaged once the early repayment period expired.

“No-one can see rates coming down that much more, so the restriction is the main issue for me,” he explained.

Rachel Springall, spokeswoman for Moneyfacts, said decade-long fixed mortgages are clearly becoming a new favourite among lenders.

“This trend may well continue to grow in times of uncertainty, but borrowers must always work out the true cost of any deal and be sure that their circumstances will remain relatively unchanged for the next 10 years.”

She pointed out these deals carry early redemption charges and because most of these run up to the final year of the initial fixed deal, they may not be appropriate for borrowers who want to move or remortgage in the next few years.

Currently, out of all the 10-year fixes available, Ms Springall said only TSB offers a shorter redemption period.

Ms Springall explained a true cost basis (assuming the borrowing amount is £200,000) and if borrowers wanted to fix for just five years (because their circumstances might change over 10 years) then they might find a better deal elsewhere.

peter.walker@ft.com