Should you go for a ten-year fixed mortgage?

Banks have started to offer borrowers longer-term mortgage deals. Matthew Partridge looks at the pros and cons of taking out a long-term, fixed contract.

Ten-year mortgages have always been rare beasts in the UK. Most Britons have either gone for variable-rate mortgages often linked to the base rate or fixed-rate' deals where the rate is only fixed for two or three years.

However, other countries take a different approach. For instance, in Germany the market is split between variable-rate mortgages, medium-term fixed-rate mortgages and long-term fixed-rate mortgages. In America fixed-rate deals of 15 or 30 years are standard.

The good news is that banks have begun broadening the number of longer-term deals available in the UK. With long-term interest rates starting to drift upwards, these deals have become more expensive over the past few months. However, they are still relatively cheap compared to even a few years ago.

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For instance, the latest Bank of England figures suggest that the average five-year rate at the end of May was 3.72%, compared to nearly 6% over the last two decades. Given that the economic recovery seems to be gaining momentum, increasing the pressure on a reluctant Mark Carney to raise rates, is it worth considering an even longer-term deal?

The one clear benefit of taking out a ten-year deal is that it gives you protection against rising interest rates. While Carney continues to give mixed signals about his intentions, he has suggested that rates could reach 2.5% within three years.

In the longer run, Sir Charlie Bean, the former deputy governor, has suggested rates could reach their historic average of 5% within a decade. If this is correct, then the Woolwich's 3.99% rate for ten years looks like good value.

However, you need to be aware that ten-year deals also have some downsides. The market for them is still a tiny niche compared to the one for shorter-term deals. What's more, ten-year deals tend to be limited to those with higher deposits.

The Woolwich deal is only available to those with at least a 30% deposit. Fixed-rate mortgages also typically come with a big fee (in Woolwich's case £1,499), which makes them less suitable for cheaper properties.

Admittedly, Newcastle Building Society offers a no-fee ten-year deal where you only need a 20% deposit, but the headline interest rate is significantly higher at 4.49%.

The final downside of fixed-rate mortgages is that they have high early repayment fees. This is to prevent you from switching to a cheaper mortgage if rates subsequently fall. Given that rates presumably can't go much lower, this may not be a major worry.

However, if you think that you may have to move house, it's worth checking the fine print of your deal to see whether you can still keep your current deal. While Woolwich's fixed-rate mortgages are portable, which means that you wouldn't need to pay the initial fee again, you would still have to reapply and pay for a valuation.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri