Looking for a new fixed rate? How about 40 years…
You may or may not be aware that the UK mortgage market is quite unique; it’s incredibly competitive and we tend to shop around for a new deal every few years to make sure we’re not paying over the odds. This makes sense of course, given the cost of housing in most parts of the UK and considering the monthly mortgage payment is most people’s biggest monthly commitment by some way.
However, you might have heard that in mainland Europe and many other countries, mortgage habits tend to be a bit more long term, with many borrowers opting to take a fixed rate for the life of the mortgage. For a long time we haven’t had that option in the UK because lenders simply haven’t offered long term fixed rates on competitive terms.
That might be all about to change thanks to Habito’s “One” product, which offers fixed rates for between 10 and 40 (yes FORTY) years, and is now available from independent mortgage brokers – including us at Mortgage Medics. Interest rates range from 2.79% to 5.30% depending on how long you want to fix for, how much deposit or equity you have, and whether you’re willing to be tied in with ERCs (early repayment charges).
So far, so good you might think? Well yes and no… if you compare those rates to what’s on offer to borrowers fixing for 5 years there’s quite a difference. Fixing your mortgage for 5 years typically results in an interest rate of as little as 1.03% if you have 40% deposit/equity, or around 2.74%-3.00% if you have 10% deposit*.
In short, you could be paying hundreds of pounds per month more for the privilege of fixing for longer. But that’s today of course. What if interest rates were to shoot up over the next 5 years? Well, as with a fixed rate of any length, you protect yourself from market fluctuations all the while you’re in it, so perhaps this is where Habito One will come into its own for shrewd long-term planners? Well it’s possible, and unless you have a crystal ball it’s impossible to say whether fixing for 2, 5 or 25 years is going to be your best bet, but it’s hard to imagine interest rates averaging 5%+ over the next 25 years when you consider the cost of housing stock, the average amount owed on mortgages and therefore the effect an interest rate increase would have on the average household.
So in summary, will we see borrowers flock to fix for the rest of their working lives? Probably not, but it’s certainly got the conversation going and who knows, if more lenders step into this space then perhaps we’ll see more attractive deals on offer in the future.
If you’re looking to become a homeowner, move house or get a better deal on your existing mortgage we’d love to hear from you. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
Sam Murphy – 5th August 2021
*Rates quoted are correct as at 5th August 2021 but are subject to circumstances and credit check. For a personalised illustration contact us for a review of your options.