10-year mortgage deals fly in

Friday, 9 January 2015
You may not have noticed but lenders are now falling over themselves to offer what was until recent times an ever-so-unpopular 10-year mortgage deal. Today, this Cinderella of the mortgage world is definitely going to the ball.

This week Moneyfacts revealed that the number of 10-year fixed rate mortgage deals on the market is continuing on a very sharp upward trajectory.

Traditionally, it is the shorter term fixed rate mortgage that has been the favoured option for borrowers because we often worry that if we fix for too long then rates may actually fall, making our once attractive fixed rate expensive. However, the historic low rates on offer in today’s market means that fixing for longer periods is definitely an attractive offer - few speculators think rates will fall further, hence the rise of the decade-long fixed rate.

The facts

In January 2014, there were just eight 10-year deals to choose from across the entire mortgage market, but by October that number had risen to 22, which is quite impressive until you realise that today, just three months later, the figure is 77.

Borrowers will be happy to hear that it is not just choice that is improving - interest rates are falling, too. The average rate fell from 4.23% in January 2014 to the lowest average 10-year fixed rate deal ever, at just 4.17% today.

Of course, lenders aren’t offering more for less just for our benefit… Any lenders that borrowed money from the Government’s notorious Funding for Lending Scheme have just four years from taking the money to prove that it has been lent out in new mortgages. If they can’t prove this, they suffer a fine. For this reason, they want you on their books for more than a couple of years.

Are 10-year fixes a good thing?

For at least the last two years there has been speculation about a rise in the Bank of England base rate, and when that moves so will most variable rate mortgages. The constant speculation is making many borrowers jumpy as they are potentially facing the prospect of increased monthly mortgage payments.

If you have this worry, then a longer term fixed rate mortgage may be your answer. It is certainly great news for borrowers wanting to fix their repayments for an entire decade that we are currently seeing some of the lowest rates ever offered.

If this is something you want to look into, here are some pointers:

  • Check that the mortgage is portable so you can move to a new home and take your mortgage with you.
  • Understand the redemption fees. These are different to setting up fees and are hopefully ones you will never need to pay. However, it’s important to understand them just in case. They come into force if you need to wind-up the deal earlier than you originally agreed, in this case, 10 years.
  • Redemption fees are normally scaled, so to start off with they are very expensive and then the nearer you get to the end of the agreed term the cheaper they become.
  • Don’t get too wound-up about rates or setting up fees but concentrate instead on ‘true cost’. This is the actual amount you pay out of your pocket over the 10 years. This figure takes into account every penny, which means it is easy to see how one deal compares with another.
  • Don’t be scared, mortgages are taken out every day.