10-year fixed rate mortgage costs tumble to record lows
Rates on long-term fixed-rate mortgages are being slashed, with HSBC today launching the cheapest 10-year fix on record, but the Coventry Building Society is expected to launch an even better value decade-long lock in tomorrow (Friday 8 July).
HSBC’s new market-busting deal charges 2.79% until August 2016. The mortgage has no arrangement fees, though buyers will need to pay a £227 valuation fee. HSBC will lend up to £500,000, though borrowers need a 30%+ deposit.
For someone buying a £300,000 property over 25 years with a 40% deposit, this deal will cost £834 a month. That saves £19 per month compared to the last week’s top ten-year deal, from TSB, which charged 2.99% and a £450 fee. Over the full ten year period, the HSBC will cost £100,307, saving £2,503 compared to TSB’s deal.
But tomorrow, the same borrower can get monthly payments down to £807 with Coventry Building Society, which will let borrowers with a 35%+ deposit lock in a 2.49% rate until 2026, but with a £999 fee. Over the fixed-rate period, this undercuts HSBC’s deal by £2,588, with a total cost of £97,719.
And the Coventry is offering an even better deal to people who have at least a 50% deposit, charging just 2.39% for ten years, again with a £999 fee.
The rate-cuts follow signals from Bank of England governor Mark Carney, who earlier this week announced measures to relax lending restrictions on banks and building societies that could free up £150 billion for mortgages and business loans.
This could push mortgage costs even lower, but it could pile even more pressure on savers by pushing rates lower.
Should you go for an ultra-long fix?
HSBC claims that seven in ten house hunters would consider locking in a mortgage rate for a decade, mainly so they can be sure what their mortgage costs will be.
For many people the security of a long-term fixed rate deal will be worth it, as it protects against a rate rise and it’s not clear how long these cheap deals will last.
Speaking earlier this week, Mark Carney, Governor of the Bank of England pleaded with consumers to consider the risks of a rate rise, and borrow prudently.
He said: “We always advise people to be prudent, whether times are good or times are difficult. Certainly if you're taking out a mortgage, at some point over the life of that mortgage times will be difficult, it might be at the start, it might be five years in, it might be 10, 15, whatever.
“So you want to make sure as a family, as an individual, that you'll be able to service that mortgage if times are tough; you don't want to lose your flat, your home. And so think through where interest rates could go, where your earnings could go, as appropriate.”
The security of a long-term deal might be attractive, though borrowers need to understand it doesn’t come free.
In the scenario outlined above, someone borrowing with the Coventry will pay £804 each month during the fixed rate period. But if they were willing to risk a rate hike in a couple years, they could get repayments down to £719 by opting for a Norwich & Peterborough’s two year fix, which has a £676 fee.
Ultimately, the questions borrowers need to ask are how likely is it that rates will rise, and are they willing to pay a higher mortgage rate in the short term to insure against that possibility.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.