On August 2nd 2018, the UK base rate rose 25bps to 0.75% – the second rise in a short few months – which has now got many borrowers considering fixing long term.
Many banks, building societies and specialist lenders are now bringing out more 10-year fixed rate mortgages in response, but is locking your deal for a decade a good idea?
Our residential finance brokers outline the pros and cons of 10-year fixed mortgages for you to decide.
Advantages of 10 Year Mortgages
Pay Fewer Mortgage Fees
When you take out or switch mortgages, you are required to pay a fee. Therefore, if you renew your mortgage every two years, you could end up paying five times the fees than if you choose a 10-year fixed mortgage term.
Avoid Fluctuating Rates
By fixing your mortgage for a decade, you will not be affected if the base rate rises again during this period. Instead, you will have peace of mind and you will be able to budget long-term.
Safeguard Against Fluctuating Prices
Although we don’t expect a crash a la 2008 to happen anytime soon, choosing a 10-year mortgage will ensure your LTV will increase and you’re not affected by any dips in the property market.
Minimise the Number of Credit Checks
Every time you switch your mortgage, a lender will run a credit check on you to analyse your financial history and ensure you’ll be able to make repayments. By fixing your mortgage long-term, you will not need these multiple credit checks and therefore your financial planning will not be affected, and you will be less restricted when applying for other products.
Disadvantages of 10 Year Mortgages
Monthly Payments Could Be Higher
10-year fixed mortgages offer security. That usually comes at a cost. Generally, expect interest rates on a 10-year mortgage to be higher than that of a five or two-year mortgage, and therefore monthly repayments to be slightly higher.
Of course, this is where working with an experienced broker comes in – our team can help find you a competitive mortgage deal that suits your needs.
There Could Be Hidden Extra Charges
Although many mortgages are portable, not all are. So, if you’re planning to move in the next 10 years, make sure to read the fine print or you could be hit by a hefty early repayment charge. This can reach as much as 7% of the outstanding mortgage value!
Furthermore, even if a deal is portable, this is subject to approval and affordability checks, so isn’t a done deal.
In addition to moving-related charges, if you come into money or would like to make substantial overpayments you’ll be charged for it. Most mortgages will only allow you to overpay up to 10% of the overall loan value per year.
What Term Works Best for You?
Whether you’re looking to learn about the best 10-year fixed rate mortgage for you, or to learn about the other terms available, please get in touch with our friendly and experienced team to discuss your residential mortgage needs. We’re here to help.