Long-term fixes buck trend of rising rates

Long-term fixes buck trend of rising rates
Despite the Bank of England raising interest rates to 0.50% in February, long term fixed rate deals are currently at their lowest ever level.

Recent weeks have seen shorter term fixed rates tick up following the Bank’s December decision to hike rates, but many lenders, including TSB, Virgin Money, Lloyds and Halifax improved their 10-year fixed rate mortgage offers ahead of the latest rate rise.

Soaring living costs combined with rate rises could boost the appeal of locking into a fixed rate for 10 years, especially now that the margin between these and five-year fixes has narrowed. Ofgem announced earlier this month that the energy price cap will rise by 54% in April, placing even greater financial pressure on many households and prompting many to look at ways to reduce their outgoings.

Locking into a 10-year fix could provide valuable long-term security, especially with interest rates expected to rise further in coming months, but it’s vital to carefully weigh up all the pros and cons of these deals first.

Advantages and disadvantages of long-term fixed rates

Even though 10-year fixed rates have become more competitive in recent weeks, rates are still generally higher than two and five-year fixed rates.

That said, those locking into a shorter-term fix may find that when their deal finishes in a couple of years’ time, two and five fixed rates available at that point could be higher than the long-term fixed rates available now.

One of the biggest considerations when locking in for 10 years or longer, however, is that many of these deals will tie you in for the full fixed rate period. Although 10-year deals are typically portable, which means you can take them to a new property if you decide to move, there are no guarantees that you’ll definitely be able to do this, as you’ll have to meet your lender’s affordability criteria at the time.

If your circumstances have changed since you applied for the mortgage, or if the lender has changed its criteria, you may find that you can’t port your mortgage across let alone borrow any additional funds and therefore might have to pay steep Early Repayment Charges to leave your deal.

It’s therefore usually a good idea to consider a long-term fixed rate deal if you’re confident that your circumstances won’t change, and you’re happy to stay in your property for the fixed term period.

Some deals provide homeowners more flexibility, for example only having Early Repayment Charges for the first few years rather than the full 10-year fixed term, and some may not have any repayment charges at all. However, there will usually be a price to pay for this flexibility in the form of higher rates.

Seek professional advice if you’re not sure whether a long-term fixed rate deal is right for you. A broker can take you through all the available options so you can be certain you end up with the best deal for your individual circumstances.

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