Ten-year fixed rate mortgages have hit record lows in recent weeks. Woolwich, part of Barclays Bank, for example, has launched a mortgage deal fixed at 4.67% for a decade - a rate to rival some of the best two- and three-year fixed rate loans on the market.
Other lenders have also cut their prices. Norwich & Peterborough Building Society has a ten-year fixed rate at 4.68%, Yorkshire Building Society is offering ten-year loans at 4.69% and Newcastle Building Society is charging 4.75%.
But though these deals are mouth-watering experts are warning homeowners to think carefully before locking in long term. There are steep penalties applied if customers decide they need to leave the mortgage deal early.
Woolwich, for example, will charge borrowers a hefty 4% of their outstanding mortgage balance at any time during the ten years if they choose to switch to another mortgage lender for a lower interest rate or if they want to redeem their loan early.
‘Long-term fixed rate loans suit borrowers who are looking for security,’ says an independent mortgage broker. ‘Some first time buyers, for example, may feel they are stretching to get on to the property ladder. They may not cope if interest rates started to rise.’
But fixing for ten years is a huge commitment. While it is fine if you know you will be staying in your existing home for at least a decade, if there is any chance you might want to move or downsize it is probably unwise to fix for so long.
‘Most borrowers want to keep some degree of flexibility with their mortgage arrangements,’ says one independent broker at London & Country Mortgages in Bath, Somerset. ‘For this reason ten-year deals will probably only suit a small minority of borrowers. But for those who are certain a ten-year fix is the best option now is a great time to bag a bargain.’
As well as rate security, taking a long-term fixed rate also means you won’t have the hassle and expense of remortgaging every two or three years.
Ten-year fixed rate mortgages from most of the leading providers are portable. This means you can keep the same deal if you move house.
However, if you move and want to increase your home loan to buy a more expensive property then the extra borrowing will have to be taken out on another mortgage deal.
Borrowers who are nervous about locking into a mortgage arrangement for ten years but who want long-term security could consider five-year fixed rates.
Newcastle Building Society has one of the best deals at 4.54% fixed for five years. Borrowers must have at least a 10% deposit.
Fixed rate mortgages increased in popularity last year. Statistics from the Council of Mortgage Lenders, which represents 98% of residential mortgage lending, showed that fixed rate mortgages accounted for 76% of all new business in the last three months of 2005, compared with about 68 per cent in the previous three months and 56 per cent in the three-months prior to that.
