Should You Take a Very Long Term Fixed Rate Mortgage Deal?

Over recent months, the demand for fixed rate mortgages has reached a two decade high. More than four in five borrowers took their new mortgage on a fixed rate in the first quarter of 2013, many to benefit from some of the lowest rates the UK has ever seen.

While two, three and five year fixed rate deals remain the most popular, there has been an increase in interest in long term fixed rates. With a leading bank cutting its 10 year fixed rate to a record low, we ask if it is time for more large mortgage borrowers to consider a long term fixed rate deal.

Demand for fixed rate mortgage deals reaches 20 year high

Recent figures from the Council of Mortgage Lenders shows that the demand for fixed rate deals in the UK has hit a 20 year high.

83 per cent of new mortgages were taken on a fixed rate deal between January and March 2013 – the highest level since records began. This is compared to just 50 per cent of borrowers who took a fixed rate deal in 2010.

“With fixed rates so competitively priced when compared to tracker deals I’m not surprised they have become so popular,” says Islay Robinson, CEO of London mortgage broker Enness Private Clients.

“Considering there is really only one way for interest rates to go, most high net worth mortgage borrowers want to take advantage of a fixed rate deal to benefit from the peace of mind of knowing exactly what their repayments will be.”

While most borrowers are taking short term fixed products, there has been an increase in demand for long term fixed rates, as we see next.

Leading lender slashes 10 year fixed rates for high value mortgage borrowers

One of the UK’s leading lenders has cut the price of its 10 year fixed rate mortgage and is now offering the lowest cost long term fixed rate in its history.

Barclays has cut the rate on its 10 year fixed rate to 3.89 per cent as part of a general review of its mortgage products. Barclays managing director of mortgages Andy Gray says: “Fixed rates are proving increasingly popular with borrowers who are looking for the certainty of securing their mortgage payments over the longer term and we have helped these customers by giving them access to some of our lowest-ever fixed rates in 2013, including the 10-year fixed launched.”

But, is a 10 year fixed rate the right option? Mr Robinson, the large mortgage expert, believes they remain a niche product. “One of the major problems with a long term fixed rate mortgage is that there will be significant early repayment charges if you come out of the deal early.

“So, if your circumstances change – perhaps you need to move home or repay your mortgage – you could face penalties running into tens of thousands of pounds.

“While long term fixed rate products can be useful for some high value mortgage clients I wouldn’t recommend them to everyone. Ten years is a long time to commit to a mortgage deal and it’s likely your circumstances will change during that period. Having the flexibility to change your mortgage arrangements could be worth more than the security of the fixed rate,” he added.

For more information on some of the best high net worth mortgages around right now, why not explore our mortgage guide library, or contact us for a free and personal consultation anytime.

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