HSBC has cut the rate on its 10-year fixed term mortgage, allowing borrowers to lock in a lower rate for a decade of repayments. But is it worth fixing your mortgage for such a long time?
HSBC’s fixed-rate deal lasts for an enormous 124 months. For people looking to borrow 70% of the value of their property, the rate has fallen to 2.69%, a decrease of 0.25%.
This is one of the lowest rates offered on a 10-year fixed term mortgage across the market. Here, we lay out the pros and cons of long-term fixed-rate mortgages, and how HSBC’s deal stacks up.
- If you need impartial advice on which mortgage deal best suits your circumstances, you can contact our experts at Which? Mortgage Advisers on 0808 252 7987.
How does the HSBC deal compare?
If you can offer a 30% deposit, meaning a Loan-to-Value ratio of 70%, HSBC’s recent cuts make it the lowest interest rate currently available for a loan fixed for 120 months or more.
But aside from interest rates, it’s just as important to consider the Annual Percentage Rate of Change (APRC). This measures the cost of the mortgage over the life of the loan, including all fees and charges.
For HSBC’s 10-year fixed-rate mortgage with 70% LTV, the APRC comes to 3.10% per year. By comparison, Nationwide Building Society’s 10-year fixed deal offers an APRC of 3.20% at this LTV.
If you’re a first-time buyer looking to borrow with an LTV of 70%, be aware that only HSBC will offer you a 10-year fixed-rate loan.
If you can bring a 20% deposit, a number of banks offer 10-year fixed-rate mortgages on an 80% LTV. The HSBC fixed-rate APRC at this deposit level is 3.2%.
With a deposit of this size as a first-time buyer, you could also apply for mortgage with Barclays or First Direct, which both offer an APRC of 3.10%.
If your deposit is 40% – for example, if you’re remortgaging – HSBC is beaten on the rate by other providers for a 10-year fixed term. The lowest available rate on an LTV of 60% is from First Direct who offer an APRC of 2.80% for 10 years, followed closely by Barclays, with an APRC of 2.90%.
Find out more: How to find the best mortgage deal
Should buyers consider a long-term fixed rate?
Fixing your interest rate for an extended period can be an appealing option, especially given the Bank of England base rate is currently at a historic low.
A fixed-rate mortgage gives you certainty over your future repayments. While a long-term fix is likely to be more expensive than a two or three-year deal, it also gives you longer-term peace of mind. Unexpected rate rises won’t hike up your monthly payments, which could be particularly attractive in politically unstable times.
However, a fixed-rate mortgage also means you won’t benefit from any rate decreases. It’s impossible to say where rates might be sitting in 10 years’ time and a fixed-rate mortgage requires you to commit to today’s rates, no matter what happens.
Find out more: Fixed rate mortgages
What if your plans change?
Your dreams and ambitions might also affect whether a long-term fix is right for you. Generally, a 10-year deal would be best suited to buyers who plan to stay at their property for the long haul.
Before taking out a 10-year fixed term mortgage, you should consider any life changes you might make in the coming decade, such as having a baby, switching careers, or moving to a new area. If your life is likely to change in the coming years, think carefully before locking in your mortgage.
If you move house, some providers may let you transfer your existing mortgage to your new property. However, it’s not an automatic process – you’ll need to make an application to your lender, which may or may not be accepted.
Find out more: Porting a mortgage – how to transfer to a new property
Otherwise, if you want to end your mortgage before the fixed term is up, the main thing to watch out for is early repayment charges.
You’ll have to pay these fees if you want to pay out the mortgage in full, either with cash or by selling your home. The fees tend to be 1% to 7% of the outstanding mortgage on the property, generally decreasing the longer you’ve held the deal.
As an example, if the early repayment rate is 5%, and you still owe £200,000 on your loan, you could end up paying up to £10,000 as an early repayment charge. In addition, lenders may charge you an exit fee or other charges associated with an early exit.
Should I remortgage to a fixed rate?
The most important thing to consider when switching your mortgage provider – or remortgaging – is how much you will have to pay to cancel your current arrangement.
It’s likely that if you want to switch to a fixed-rate mortgage, you’ll have to pay a cancellation fee as well as an exit fee and an early repayment charge.
These rates can go into the thousands, so be sure that the fees won’t offset any potential gains you might make through remortgaging to a fixed rate.
Find out more: Mortgages types explained – learn the difference between variable and fixed rates
Pros and cons of a fixed-rate mortgage
- You’re safe from any interest rate rises
- Greater peace of mind, as you know exactly what you’ll be paying for a certain amount of time
- Easier budgeting into the future
- You’ll initially pay more than the current base rate level of 0.25%
- Early repayment charges can be very steep
- Interest may be higher than a shorter-term deal
Your home may be repossessed if you do not keep up repayments on your mortgage. Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.