Should you fix till 2026 with new best-buy mortgages?
Borrowers can secure their monthly mortgage repayments until 2026 for less, thanks to two new ultra-long fixed rate mortgage deals from TSB and First Direct.
TSB has cut the rate on its ten-year fixed mortgage to 2.89% with a £995 fee for someone borrowing up to 60% of the purchase price.
This undercut the previous 10-year best buy from Nationwide, which costs 3.34% with no fees, or 3.24% with a £999 fee.
But First Direct quickly hit back, matching TSB’s 2.89% rate, but more importantly, with no up-front fees.
According to David Hollingworth, mortgage expert at broker London and County, these new cheaper deals largely reflect market views that the Bank of England base rate won’t rise from 0.5% any time soon, as well as lenders seeking new ways to attract borrowers.
“The threat of an increase hasn't just tailed off - it's dropped off the radar. Market rates are reducing funding costs for lenders, which in turn lets them price a bit more competitively,” he explains.
“But it’s also a very competitive market and lenders are looking for factors that can differentiate themselves from the competition.”
If you want to lock in your mortgage rate for a decade, these deals beat the previous best by £43 a month for someone borrowing £180,000 over 25 years, although the First Direct deal is comfortably the better of the two as you’ll save almost £1,000 in up-front fees.
However, if you’re looking for the cheapest monthly mortgage, you’d be much better off with a shorter fixed rate period. Norwich and Peterborough, for example, charges just 1.49% on its two-year fixed-rate mortgage with a £195 fee – saving £124 on every monthly repayment.
A long-term deal only makes sense if you expect rates to rise substantially. This seems unlikely in the near future, given the Bank of England has held rates steady for seven years now. It admittedly suggests the market consensus is rates will next rise in mid-2017, but even if they do will it be enough to cover the cost between long and short term rates? The Bank has consistently indicated that when rates do start to rise, the process will be gradual.
Another factor to take into consideration if you do opt for a long-term deal, is that if something cheaper comes up, you’ll likely have to pay early repayment charges to switch away during the fixed-rate period, warns Mr Hollingworth.
It can also make moving hard. Some lenders will let you transfer your mortgage to a new property, but it can be complicated or costly.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.