Chelsea BS has launched a new ten year fixed rate mortgage with a rate of just 3.99%. Whilst there are not many options in this sector of the market this is well ahead of the rest and again poses the question of how long borrowers should fix for.
There can certainly be no argument that, with Bank of England Base Rate at an all time low, there is a good case for locking into a deal that provides security at a keen rate. Removing the risk of rising monthly mortgage payments when Base rate starts to climb will appeal to a lot of borrowers especially at a rate that rivals many lenders’ shorter term fixed rates.
Long term fixed rates became the talk of the town when Professor David Miles produced a review of the UK mortgage market in 2004 at the request of the Chancellor. This suggested that the stability of long term fixed deals could bring benefits to the UK market and a move away from a more volatile environment. That prompted a rash of deals fixing the rate for as long as 25 years but take up remained limited.
The downside of long term fixed rates is that they will typically impose early repayment charges throughout the fixed rate period. If there is a need to review or change the mortgage requirement during that period then there isn’t the flexibility to shop around the market.
Although most mortgage rates will be portable, meaning that they can be transferred to a new property without incurring an early repayment charge, there is no guarantee what the lender will be able to offer on any top up or indeed if they can offer the borrowing requirement at all.
The most recent Financial Ombudsman annual review pointed to complaints over porting increasing as a result of tightening lending criteria leading to more people being declined. Early repayment charges will typically amount to thousands of pounds so it could turn into an expensive mistake.
If you are someone that is approaching the final ten years of your mortgage and there’s no foreseeable reason to review the mortgage then this could be a nice way to see out the mortgage at an attractive rate. However, I would still expect that many will find the lock in period too long and will therefore stick to a rate over a more foreseeable horizon.