Fixed Rate 

More borrowers looking for long-term rates

More borrowers looking for long-term rates

More and more borrowers are opting for 10-year fixed rate mortgages as they anticipate a rise in interest rates, research has found.

Analysis from Moneyfacts showed the number of 10-year fixed rate mortgages on offer has increased by 35 in just one year.

This was because borrowers were gearing themselves up for the possibility of multiple base rate rises in the future, knowing the low rates they have been used to in recent years will inevitably rise, it said.

There are now 139 10-year fixed rate products on the market offering an average rate of 3.10 per cent, compared with 112 such products with an average rate of 3.52 per cent in July 2016.

Charlotte Nelson, finance expert at Moneyfacts, said providers were conscious that a base rate rise could make some borrowers re-evaluate their deal, particularly if they are sitting on a standard variable rate (SVR).

Therefore, lenders are seeking to attract borrowers to longer-term deals by making them competitive, and this extra competitiveness has caused rates to fall, unlike the rest of the market, she said.

She said: "The 10-year fixed rate mortgage market may be small but the number of fixed rate deals available is certainly increasing, which is welcome news for any borrower looking for a longer-term arrangement."

Moneyfacts' data also showed a growing number of lenders entering the market, with the number of providers offering 10-year mortgages increasing from eight two years ago to 14 today.

Meanwhile, the gap between the average five-year fixed rate and 10-year fixed rate has decreased to 0.17 per cent compared with 0.39 per cent in July 2016, according to Moneyfacts.

However, the higher the loan-to-value (LTV) a borrower has, the less beneficial a 10-year fixed rate deal is likely to be because the rates will be higher.

Ms Nelson said: "Not only are there more deals on the market, but the average 10-year fixed rate has also improved, falling 0.03 per cent in the space of just one month.

"The improvement to the average 10-year fixed rate is in stark contrast to the rest of the mortgage market too, with rates elsewhere slowly but surely rising."

She added: "In times of uncertainty, borrowers’ thoughts go to how they can protect their monthly repayments – fixing their rate for 10 years does just that."

But she cautioned borrowers need to be aware that 10-year fixed rate mortgages are often accompanied by hefty redemption penalties, which require a borrower to be tied into the deal for the full length of the term.

She said: "A 10-year fixed rate mortgage will need a lot of consideration, with borrowers looking at all the options to make sure this is the right choice. But perhaps now is the time to make a long-term commitment."

Daniel Bailey, principal at Middleton Finance, said: "I have seen enquiries about 10-year fixed deals increase but none have gone ahead so far this year.