Longer-term mortgages can help guard against interest rate rises but lack flexibility
Virgin Money has launched a new range of 15-year fixed-rate mortgages starting from 2.55%.
For borrowers with a 35% deposit the mortgages start at 2.55% with a £995 product fee or 2.89% without.
Virgin is also offering customers with a 25% deposit a rate of 2.75% with a product fee of £995 and and 2.99% with no fee.
The range also includes a 15-year fixed rate at 90% LTV (loan-to-value) with a rate of 3.75% and no product fee.
Chris Sykes, mortgage consultant at Private Finance, says: “The rates on this product are very competitive, even for customers at higher LTV bands, and are similar to those currently on offer at a 10-year fix. Consumers can therefore benefit from an additional five years peace of mind for little additional cost.
“Virgin Money is clearly of the opinion that interest rates are unlikely to rise significantly even within the next decade, which is a reassuring indication of future mortgage affordability. “
Andrew Asaam, director of mortgages at Virgin Money, says: "Fixed rates of longer than 10 years are not generally available in the UK market but, given the economic backdrop, they can be a perfect choice for borrowers who are looking for longer interest rate certainty.
“We are delighted to continue our tradition of innovation by adding them to our range, giving customers the option to take advantage and lock in the low rate environment for an extended period.”
Should you take out a 15-year mortgage?
While 15-year mortgages are popular in other countries, most lenders in the UK typically offer 10-year mortgages as the longest term.
If you are looking for peace of mind, locking into a long-term rate could shield you against any potential interest rate rises.
However, while a 15-year term may look like a good choice now you could miss out on more competitive rates.
Opting for a longer-term mortgage also gives you less flexibility, especially if you want to move in the future.
While longer-term mortgages can make sense for older borrowers looking to remortgage they can also come with too many early exit fee charges for first-time buyers.
If you move house you could pay exit fees as high as 8% in the first five years if you decide to take out a 15-year mortgage from Virgin. This then falls to 7% and gradually reduces over the term of the mortgage.
If you decide move home you can take the mortgage with you in a process known as porting, potentially saving you thousands in exit charges.
However, you would only be able to port the mortgage for the current loan amount, so if you move to a more expensive property you will need to take out a top-up mortgage with Virgin.
Mr Sykes adds: “A 15-year fix is a considerable commitment and therefore won’t be suitable for everyone. Those anticipating a move within this time-frame will likely to be suited to a shorter-term product.
“However, homeowners in their ‘forever home’ looking for a way to guarantee their monthly repayments may well be tempted by the prospect of financial security that lasts beyond the next decade, particularly in today’s uncertain times.”
Best mortgage rates
A long-term fix can give you safety from interest rate rises but you can end up paying higher rates.
Two of the cheapest fixes at the moment are from HSBC (1.34%) and Santander (1.35%), while the best five-year fix is 1.74% from HSBC and TSB. The lowest rate for a 10-year fix is from TSB at 2.29%.
One of the best deals out there for buyers looking for a 10-year mortgage is from TSB, which has an LTV of 65% and is fixed until 30 November 2029.
It comes with a 2.39% rate and no scheme fees. The repayments will be £662 per month, or £7,939 on an annual basis for someone looking to borrow £100,000 over 15 years on a property worth £200,000.
For someone looking to remortgage their £200,000 property and borrow £100,000 over 15 years at 60% LTV, Platform currently offers the cheapest deal at 2.19% for a five-year mortgage. This mortgage comes with monthly payments of £641 for an annual cost of £7,639.
For first-time buyers with a 10% deposit looking to buy a £200,000 property over 25 years Sainsbury’s Bank has a mortgage with an initial rate of 2.24% for two years, which then reverts to standard variable rate (currently 4.49%). The monthly cost is £784, putting the annual cost is £9,160.