13 July 2018

Rate rise threat leads to launch of ten-year fixes

Lloyds and Halifax this week launched new ten-year fixed-rate mortgages. But are borrowers ready to fix for such a long period of time?

Traditionally, take-up of ten-year fixes has been limited because they have cost that much more than shorter-term fixes, while the early repayment charges (ERCs) have been much more onerous. Many borrowers are happy tying themselves into a two- or five-year fix to gain protection from interest rate rises in the short to medium-term, but not many know with confidence what they will be doing in ten years.

However, with the pricing of ten-year fixes falling, particularly as more lenders offer such products, it can be appealing to get that level of certainty at such a competitive price, at a time when it looks as though interest rates will rise. Moreover, some lenders are being more flexible on their ERCs, so not charging them after the first few years, for example, giving borrowers an option to exit the deal early if they need to without being penalised. For example, TSB does not charge any ERCs after the first five years of the mortgage if you wish to get out early.

Having said that, while a ten-year fix may make sense for a young family who have already moved up the property ladder, have enough space and are unlikely to move for some time, it makes less sense for a first-time buyer purchasing with a friend, as much could change in that person’s life over the next decade.

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