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14 Jan 2019

Should you fix your mortgage rate for 10 years?

Number of 10-year mortgage deals increases by more than 50% in 2018

Fixed-rate mortgages that last for a decade are becoming more popular, but is locking-in your rate for a decade really a good idea?

With the prospect of further rises in the Bank of England base rate and continuing uncertainty around Brexit, homebuyers are taking advantage of cheap rates to fix their mortgages for longer.

And while five-year fixes were very popular in 2018, even longer introductory terms are now becoming more common, with the number of decade-long deals on the market increasing significantly in the past year.

Here, we explain how the rates on 10-year deals compare and offer advice on the pros and cons of long-term fixed-rate mortgages.

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Lenders offering 10-year fixed-rate mortgages

In the past 12 months, a growing number of lenders have begun to offer 10-year fixes, which were previously only available from a handful of banks.

In January 2018, eight providers offered these mortgages: Barclays, Coventry, First Direct, HSBC, Leeds, Nationwide, Santander and TSB.

Now, however, that figure stands at 14. Santander has stopped offering 10-year deals, but Accord, Aldermore, Halifax, Kensington, Lloyds Bank, Virgin Money, and Yorkshire Building Society have all joined the market.

This increase in competition means the number of products on offer has risen by more than 50% in the space of a year, to reach 175.

January 2018January 2019
No. of 10-year fixed-rate mortgages113175

How much do 10-year mortgages cost?

Greater competition usually means better rates, and that's largely been the case in the 10-year market - with rates at most loan-to-value (LTV) levels slightly cheaper than a year ago.

Indeed, at the popular LTVs of 75% and 80%, the cheapest introductory rates dropped marginally in 2018, despite an increase in the Bank of England's base rate.

That good news doesn't extend to buyers with very small deposits, unfortunately.

Fixed-rate deals lasting 10 years at 95% LTV remain few and far between, and this lack of competition means rates aren't at all competitive when compared to other fixed-rate terms.

How do rates compare with five-year fixes?

If you're thinking of a long-term fix, you're likely to be wondering whether a five or 10-year deal is the best option.

Five-year fixes rocketed in popularity during 2018, and they're still priced very competitively - even at a time where two-year fixes are becoming more expensive.

The chart below shows the cheapest five and 10-year rates currently on the market.

As you can see, 10-year fixes are generally around half a percent more expensive than five-year deals, with the exception of 95% products, which are considerably more expensive.

Five and 10-year fixes: early repayment charges

While rates on longer-term fixes might seem attractive, these deals are only really suitable if you're not planning to move home during the introductory term.

That's because chart-topping long-term deals tend to come with expensive early repayment charges (ERCs), meaning that the earlier you redeem the loan, the more you'll have to pay.

For example, several competitive 10-year fixes come with the following ERCs:

  • Years 1-2: 5% of the outstanding balance
  • Years 3-5: 3%
  • Years 6-10: 1%

This means that if you choose to settle your mortgage in the second year while owing £200,000, you'll face a fee of £10,000. And that's not all. Some lenders also add 'admin fees' on top, which are generally around £85 to £125.

Outstanding balance v initial advance

In addition, some deals base their ERCs on a percentage of the initial loan rather than the outstanding balance, adding an extra chunk on to your costs.

This could really sting if you've spent a few years paying down your mortgage, and want to pay it off in full (either by selling your home or switching to another deal). Your early repayment charge would be applied to the initial mortgage you took out, and not the amount you had left after, say, four years' worth of repayments.

High ERCs aren't limited to 10-year products either, with many five-year fixes also operating a sliding scale of ERCs starting at 5% in the first year.

How to choose a mortgage term

Introductory mortgage terms come in all shapes and sizes, from popular two and five-year deals to less-common three and seven-year mortgages, which aim to bridge the gap between short and long-term products.

In truth, the right term for you depends on three factors: your individual financial circumstances, when you plan to move home, and your appetite for risk.

For example, rates on two-year fixes might be rising, but they remain attractive for buyers who might want to move home in the short term and are on-the-ball enough to find a new deal before being moved on to their lender's standard variable rate (SVR).

Long-term buyers and settled remortgagers looking for protection against future base rise rises, however, might consider three, five or even 10-year fixes to be a safer option.

Whatever term you choose, it's important to do your research and look at the full cost of the mortgage and any ERCs before rushing in.

Advice on your mortgage options

If you're buying a home or are looking to remortgage, it can be useful to seek advice on your mortgage options from a whole-of-market mortgage adviser.

This story was updated at 9:23am on 14 January 2019.