With interest rates at historic lows, the idea of locking in a fixed mortgage rate may be appealing. Long-term fixed-rate mortgages are fairly rare in the UK: we typically fix rates for just two or three years. However, there are longer deals available, with the standard longest term being ten years.
There are obvious advantages to entering into such a long-term fixed rate. You know exactly how much your mortgage payments will be for the next ten years, meaning you can budget better for the medium term. You might also save money on remortgaging fees, given that you won't have to renew for several years. However, a ten-year fix won't be the best deal for everyone.
First, interest rates would probably have to go up substantially for you to save money in the long run. You should also consider whether any money saved would be cancelled out by arrangement fees (which can add up to more than £5,000, according to estimates by comparison site uSwitch) and by early repayment charges on your existing loan (typically between 1% and 5% of the value of your remaining balance) if you're switching mortgage. It is also likely that your monthly payments would be higher than on a shorter-term deal, as you'd be paying for the security of a fixed rate. And you might miss out on an even more favourable deal in the future. This may seem unlikely, given how low rates are at the moment, but if you subsequently wanted to switch to a different deal before the ten years were up, you would usually have to pay exit fees.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Hence a ten-year mortgage might be best suited to a buyer who intends to stay in a property for at least the duration of the mortgage, who thinks interest rates are going to rise sharply during that period, and who is concerned that a big increase would make it hard to meet their payments. If that's your situation and you have a 10% deposit, one good deal is a 4.19% rate from Nationwide. For those who are able to put down a much larger amount, TSB offers a 2.94% deal for those with a 40% deposit. Arrangement fees also apply on both products, with alternative deals that carry lower or no fees in exchange for a higher interest rate.
Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.
Pension withdrawals on the rise, HMRC data reveals
Pension withdrawal data has led to some raising concerns over savers ‘raiding’ their pensions unsustainably.
By John Fitzsimons Published
ONS: UK economy recovered from pandemic faster than previously thought
Revisions from the ONS showed the UK economy has grown since the pandemic, while the latest data showed GDP grew in the second quarter of 2023.
By Nicole García Mérida Published