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Should you fix your mortgage rate for seven or ten years?
Longer-term fixed-rate mortgages that last seven or ten years are becoming more common, but is locking yourself into a deal for up to a decade really a good idea?
With ongoing Brexit uncertainty and the potential of further base rate rises from the Bank of England, homebuyers are increasingly looking to secure cheap rates for as long as they can.
And now, Yorkshire Building Society has cut the rates on its range of seven and ten-year fixes, having seen a 44% uplift in demand from customers.
Here, we assess how the rates on seven and ten-year deals compare and explain how to choose a term on a fixed-rate mortgage.
The boom in long-term mortgages
Over the past 12 months, there has been a boom in longer-term introductory periods on mortgages, especially when it comes to seven and ten-year fixed-rate deals.
Seven-year fixes are still very rare compared with five or ten-year deals, but the 160% uplift in product choice from 10 to 26 appears to have helped drive prices down from 2.73% to 2.62%, on average, in the past 12 months.
Meanwhile, there has been a 40% rise in the number of 10-year fixed-rate mortgages on the market, from 128 in May 2018 to 178 today, and the increase in choice has seen the average rate of a deal drop from 3.14% to 3.04%.
Right now, five-year fixes are the most common type of long-term mortgage on the market. Over the past year, there's been a 20% rise in the range of products, from 1,598 to 1,885, and average rates on these deals have fallen slightly from 3.12% to 3.10%.
The charts below show the number of deals and average rates currently available on mortgages with longer introductory terms.
Pros and cons of long-term mortgages
The main draw of going for a long-term fix is the peace of mind that your payments won't change for five, seven or ten years, no matter what happens in the economy or to the base rate. This a great advantage if mortgage rates rise, but if they fall after you lock-in you could lose out.
Long-term mortgages often come with a premium for the peace of mind and tend to be more expensive than shorter-term deals. However, this is not always the case - so always shop around and compare rates.
A long-term fix may also be beneficial to save on the cost of remortgaging. With shorter deals, you will need to act more often and pay fees to switch to a new product to avoid reverting to the higher standard variable rate.
However, locking in for the long-term is not a good idea if you need the flexibility to move.
Most five, seven and 10-year deals come with high Early Repayment Charges (ERCs). This is a percentage fee charged on the outstanding or initial balance that can cost you thousands of pounds if you need to end the deal early.
So if your circumstances change and you need to sell and move you could take a hit, unless your mortgage is portable.
- Find out more: use our mortgage repayment calculator to compare the cost of fixed-rate deals
The cheapest long-term fixed-rate mortgages
If you are keen on fixing your rate for longer, the table below shows the lowest introductory rates currently available on long-term fixed-rate mortgages.
How to choose a mortgage term
Fixed-rate mortgages come in all sorts of sizes, from two and three-year options to longer-term five, seven and ten-year deals.
In truth, there's no right or wrong option, and the right terms for you will depend on your financial situation, when you plan to move home and how much risk you are willing to take.
And while it's true that the market has swung away from two-year fixes towards five-year deals, that doesn't mean you should necessarily follow the crowd.
Two and three-year fixed-rates can be a lot cheaper, but you need to factor in the cost and effort of remortgaging sooner. These types of deal might be suitable if you aren't sure you want to stay in the same home or area and want the flexibility to move.
Five, seven and 10-year fixed rate deals can give you certainty over your monthly payments for longer, but as we mentioned earlier, you'll need to watch out for expensive ERCs, and if the mortgage rates fall, you'll be stuck with your current deal for longer.
Get expert advice on your mortgage options
Whether you're buying or remortgaging, it can be helpful to talk to a whole-of-market mortgage adviser, who can give you advice on the right mortgage term and type of deal for your circumstances.
