Ten years is a long time if you’re buying a home. Although more homebuyers are taking out mortgages with 30-plus year terms, most still are on 25 year terms. So if you fixed for 10 years, that’s 40% of your homeloan term at a guaranteed rate.
Fixed rate mortgages are, I think, often a good idea – particularly if you are a first-time buyer whose carefully-calibrated finances would collapse if there was an increase in interest rates. Certainly when I bought my first home many years ago, I took one out. I fixed at 7.75% for five years – and it was a good deal, which just shows how high variable interest rates were in the 1990s. The protection from rising rates is just as valuable today as it was then – even if the chance of interest rates climbing to the heights seen in the last century seems remote.
But would I fix for 10 years now? Halifax/Lloyds Bank has just launched a range of 10 year fixed rate mortgages for those with deposits of between 25-40% of their homes value (so not for first time buyers, then). For homemovers, the rate is 2.44% on a 60% loan to value (ie 40% deposit) with a £995 fee or 2.69% for remortgagors with the same fee. For 75% loan to value the rates are 2.59% for buyers and 2.89% for remortgagors.
Most fixed rates taken out are for two years and you can currently get 1.59% on 75% loan to value from First Direct. The problem with a long-term 10 year fix is that you are committing yourself to that rate for a decade. This might work in your favour (and you will be able to take the mortgage deal with you if you move homes in the 10 year period) but it could work against you. According to Thisismoney.co.uk, eight years ago Co-op Bank had a 10 year fixed rate deal of 5.29% which looked good at the time – but if you were stuck in it now, you’d be paying over the odds.
What’s more, the Halifax/Lloyds deals aren’t even the cheapest 10 year fixes. You can get a remortgage fix at 2.49% (0.2 lower than Halifax) from several lenders including HSBC with no fee. Personally, I think I’d take a halfway path and fix for five years were I on the market for a mortgage at the moment. Sainsbury’s has a five year fix at 1.85% for remortgage with £745 fees according to our friends at London & Country – see here. And also, check out our mortgage guides here – including our new one on remortgaging.