Andrew Milnes is Business Principal at the Mortgage Advice Bureau, Bingley.
Q: Our current fixed rate mortgage deal is finishing soon. We’ve got twelve years left on our mortgage term and have been in our home for about five years. Our two teenage children are settled in local schools and we’ve got no intention of moving in the foreseeable future. As mortgage rates are so low at the moment, we’re thinking about taking out another long-term fixed rate, and I’ve read recently that ten-year fixed rates are now available. Would that work for us?
A. Long-term fixed rate mortgages can be a great way to secure against rising mortgage payments for the life of the product. In fact, currently, nine out of ten borrowers choose a fixed rate product of some kind or another, either for purchase or when remortgaging.
Ten-year fixed rate deals have been available for many years, but have only made the news in the last twelve months or so, mainly due to the fact that they are increasingly competitive when compared against five-year fixed rate products. However, there is still a significant lack of awareness around decade-long products.
Recent research suggests that over sixty percent of borrowers don’t know they exist, yet over a third would take a ten-year deal once they realised they were available. In my personal experience as a mortgage adviser, once customers discover a ten-year fix is a possibility, it’s easy to understand why they can be so appealing. That’s because the security such a deal offers will see certain types of borrowers through to a significant point in their lives, such as perhaps seeing children off to university or maybe reaching retirement age.
However, if you’re considering any fixed-rate mortgage the length of the product you choose will be dependent on your individual circumstances. If you think you might move over the next few years, then a ten-year fix may not provide you with enough flexibility, as many such products do have Early Repayment Charges (ERCs) for the entire length of the product term, which would mean that you could pay a significant amount of money to exit the deal if you were to leave it early.
That said, ERCs vary between products and there are some lenders whose ten-year fixed rates only have ERCs in the first five years. Therefore, it’s essential to compare product terms to ensure you understand fully what’s involved.
One upside of taking a ten-year fix, particularly if your overall mortgage term has around a decade left to run, is that it provides you with the opportunity to plan for paying off your mortgage completely during the product term. As ten-year rates are so low at the moment – there are currently deals available at below 2.6 per cent – with good financial planning it’s possible to take advantage of the competitive rates to ensure that by the time the fixed term ends, your mortgage is cleared down.
Of course, it’s never possible to plan for absolutely every eventuality, so if you are interested in a ten-year fixed rate then it’s important to check that you can take your mortgage with you if you do have to move home for any reason – a process called ‘porting’ – and if so, what fees would be payable to the lender.
Also, as part of your overall calculations, you do need to take account of any product fees that you may need to pay as part of the application process for such a product. As such, fees on ten-year fixes are very similar to those on five-year deals, but it’s always valuable to discuss your options with an expert adviser.