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First Direct launches new 10-year mortgages: should you fix for a decade?

New deals offer borrowers protection against soaring mortgage rates

First Direct has launched a new range of 10-year fixed-rate mortgages, which offer homeowners protection against rising interest rates.

With the cheapest mortgages having tripled in cost this year, the idea of locking in a deal for a decade might sound tempting, but it won't be the right option for everyone. 

Here, we take a look at how First Direct's new range compares to the competition, and offer advice on choosing a mortgage term. 

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First Direct launches new 10-year mortgage range

First Direct's new 10-year fixed-rate mortgages are available at 60%, 75% and 80% loan-to-value, with a maximum borrowing limit of £550,000 and maximum term of 40 years.

Homebuyers most commonly take out two or five-year fixed-rate mortgages, but First Direct says it has launched these new deals in response to growing customer demand during the cost of living crisis

Chris Pitt of First Direct says: 'The cost of living crisis has forced homeowners and prospective buyers to rejig their monthly incomings and outgoings, of which mortgage payments tend to take up the lion’s share.

'The launch of this product is to give homeowners and buyers long-term peace of mind while external volatility – such as soaring house prices and rising utility bills – show no signs of abating.'

How do First Direct's rates compare?

First Direct's range is available with or without an up-front fee. Buyers who don't want to pay a fee can take on a slightly higher interest rate. 

The rates on First Direct's new range are as follows:

Loan-to-valueWith up-front fee of £490With no up-front fee

The new deals compare favourably to most other 10-year fixes, albeit in a small market.

  • 60% loan to value: First Direct's rate of 3.34% is level with Halifax as the joint cheapest deal on the market.
  • 75% loan-to-value: the bank's headline rate of 3.49% is third cheapest, after products from Halifax (3.38%) and Nationwide (3.39%).
  • 80% loan-to-value: First Direct's rate of 3.59% is beaten only by Nationwide (3.49%). 

Why might you want to fix for 10 years?

Five rises to the Bank of England's base rate in the space of six months have had a significant impact on mortgage rates. 

Data from Moneyfacts shows the average two-year fixed-rate mortgage is now priced at 3.74%, a rise of 1.4% since December. Five-year fixes average 3.89%, up 1.25% since December.

The cheapest deals on the market have risen at an even faster pace. At 60% loan-to-value, buyers can now get a rate of 2.99% on a two-year fix, or 3.11% on a five-year fix.

Moneyfacts says prices are rising at the quickest rate since it started keeping records in 2007, and if the base rate rises again next month it could result in further increases.

With this in mind, it's easy to see why homebuyers and remortgagers would seek solace in a longer-term fix. 

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The dangers of fixing for a decade

First Direct's deals look tempting on paper, but there are some things you should consider before fixing your mortgage rate for 10 years.

We don't know what will happen to rates 

First - and most significantly - we can't predict what's going to happen in the future, and the current market is a great indicator of that.

Just nine months ago, more than 100 mortgages were available with initial rates below 1%, but now you'll struggle to get one below 3%. 

By fixing for 10 years, you're taking fluctuations out of the game. A decade is a long time, and what seems like de-risking now could be a millstone in five years.

For example, if you fix now, you'll be sitting pretty if average rates are at 5% next year, but what happens if they're back at 1% a year or two later?

Early repayment charges

Longer-term fixes usually come with early repayment charges (ERCs), which you'll need to pay if you want to get out of the mortgage during the fixed term - for example, if you want to switch deal or move home.

Commonly, ERCs are charged on a sliding scale - so you might need to pay as much as 5% if you cancel your mortgage in the first year, or at little as 1% in the final year.

First Direct's deals work slightly differently. If you redeem the mortgage in year 1, you'll need to pay 3% of the original amount you borrowed. In years two to 10, that figure reduces to 2%.

So if you borrow £250,000 and want to get out of your deal in the first year, you'd pay £7,500, and any year thereafter you'd need to pay £5,000.

First Direct's mortgages are portable, which mean you can take them to your new property, but a word of caution - there's no guarantee a deal you took out years earlier on a different home will be the best option for your new one.

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Is it ever worth paying to get out of your mortgage?

If you're currently on a fixed-rate mortgage, you won't be affected by the recent rate rises until the end of your fixed term. 

If you're on a variable-rate deal, such as a tracker or discount mortgage, it's likely that your rate will have been rising steadily over the last few months.

Some homeowners on variable-rate deals have been looking to ditch their mortgages in favour of a fix.

New research by Opinium found that affected homeowners are prepared to pay over £2,000 in early repayment charges to secure a cheaper fixed-rate deal.

If you're thinking of making this move, we recommend taking advice from a whole-of-market mortgage broker before rushing in and paying a big fee. 

How to find a good mortgage deal

Mortgage rates are volatile at the moment, but we're here to help - whether you're a first-time buyer, home-mover or are looking to refinance your current deal.

If you've got a bigger deposit or higher amount of equity in your home, check out our story on the latest mortgage rates, which is regularly updated with the cheapest deals.

If you're buying your first home, our story on what's happening to 90% and 95% mortgages will help you navigate the market to find the right deal for you.