10 Year fixed rate mortgages have been reducing significantly in cost, and for the first time in the UK it’s now possible to get a pretty competitive rate fixed for 10 years but the big question is; should you get one?
Question 1- Is a fixed rate even appropriate for you?
Forget 10 years. Should you even have a fixed rate mortgage?
Lots of people are caught out by significant early repayment penalties due to not properly considering the question of their long term plans before buying.
Will you be moving home, repaying large balances early, hoping to raise significant additional finance from the property or could you be eligible for better deals in the short term if your own circumstances improve?
Before even considering a fixed rate mortgage you should take a look at our guide to fixed rate products and see how they work versus other types of rates, and pay real consideration to whether the points above could leave you paying redemption penalties of many thousands of pounds.
You should definitely speak to an independent mortgage broker like us as well.
Question 2 – Will fixing for 10 years be competitive long term?
If you had a crystal ball you could answer this question, but no one can see into the future.
When a lender prices a product it’s either based on the cost of loaning that money from another bank or investor and turning it into mortgages or on the expected rate of interest they will pay to their own depositors over that time.
So the simple fact is that a fixed rate mortgage will be priced based on the expectations of what will happen to interest rates over the term and the Bank will be expecting to profit.
That means the current glut of competitive long term fixed deals indicate that the banks expect a prolonged period of relatively low interest rates in the UK well into the future.
So like odds given by bookies, most banks won’t be expecting average interest rates over the fixed period to be higher than the rate they are offering you. So you are in effect betting against the bank, but they have to be known to be quite spectacularly wrong in the past.
The smaller your mortgage though, and the shorter the remaining term (for someone on a repayment or capital and interest mortgage) the less differences in rate will impact long term cost.
Because of this for each loan there will come a point as remaining term decreases when small differences in rates are outweighed by the repeated fees and charges involved in refinancing a mortgage, and changing product regularly becomes poor value for money.
This is very case specific, but once your mortgage reaches that point the potential downsides of long term fixes may become insignificant.
Question 3 – So who should take a 10 year fixed rate mortgage?
If you are very worried about increases in costs, have no circumstances that would indicate other rates like variables could be preferable, and very sure that the early repayment penalties won’t be likely to cause an issue then you just need to decide whether you feel it’s worthwhile gambling long term and risking paying more than you might need to or whether to take a short term product in the hope that you can secure another competitive rate again in a few years.
This decision is mainly going to come down to the margin between short term fixed rates and long term ones and the probability that changes to your own circumstances make better deals available to you in the short term (such as better income making more competitive lenders available, or works to a property decreasing your loan to value), and whether you feel the additional cost is good value for the extra security.
A mortgage advisor such as ourselves will discuss your circumstances with you and give guidance on whether a fixed product is really more appropriate for you. If a fixed rate is the best option for you, but it comes down purely to a decision between long and short term deals then this is very much a decision best made by the customer, but at least we can present to you the best options available over the different periods so you can make a more informed decision between them.
If you’d like to know what the best deals available to you both in the short and long term could be then complete out enquiry form and an advisor will contact you, to discuss your options and provide you with advice.