Rate Watch: new 10-year fixed rate mortgages

Mortgages

There has been a lot of activity in the home loan market with some good offers withdrawn and some interesting ones coming on stream.  The most significant development has been the introduction of several long term fixes of 10 years.

If you take the view that interest rates have probably bottomed out, the new 10-year fix from Chelsea Building Society looks an attractive deal.  That is not to say that fixes could not come down further – but there is no guarantee that they will. In addition, even in the boom years there was not much choice of 10 year fixes as most borrowers don’t like to commit themselves so far forward.

Chelsea is offering a 10-year fix at 4.59% fixed until April 1st 2019.  It is available for loans up to 65% of the property value and has a £995 arrangement fee. To help with costs for those remortgaging free basic valuation and legal work is provided.  Importantly, early repayment charges only apply during the fixed rate, although they are a hefty 4% of the balance outstanding. 

This is an ideal product for older homebuyers, known as ‘last time sellers’ who are probably not going to see any increase in their income and need to be able to budget.  Even if they subsequently decide to move house, they can take the fixed rate loan with them so it isn’t much of a restriction.

But almost certainly the ‘best buy’ for those who don’t want to commit themselves for 10 years is the five year fix from HSBC at 3.99% – the more so because with two and three year fixes you incur ever increasing arrangement fees which push up the actual cost of offers with a lower headline rate.  The arrangement fee for the HSBC five year fix is £999.

HSBC’s early repayment penalty during the fixed rate period is also lower than that charged by competitors at 2% of the outstanding balance in year four and 1% in year five. Some lenders, like Abbey, charge early repayment charges (ERCs) of 6% throughout the fixed rate period.

In addition, for those borrowers keen to pay their mortgage down quicker, all HSBC fixed rate customers can overpay the equivalent of 20% of their monthly payment each month without incurring any ERCs.

‘The clear feedback we have received from customers is that they now want to lock into today’s historically low interest rates,’ commented Martijn van der Heijden, head of mortgages at HSBC. ‘Base rates don’t have much further to fall, so demand for longer term fixed rate mortgages is increasing.’

Brokers agree. ‘Although the five and ten year fixed rate products are only available to people with large deposits, for those who meet the criteria and are happy to tie in for a longer period of time, they are very competitive indeed and will bring real peace of mind,’ commented Sean Scahill, a mortgage expert at Optimal Wealth Management. 

‘People know that interest rates can't go much lower and that locking in at this level will protect them against a sudden rise in the base rate when we finally do begin to exit the recession. The clever money right now is definitely on the longer term fix although you clearly need to be aware of the early repayment charges,’ he warns.