The Bank of England raised rates for only the second time in a decade this week, and by only 0.25% to 0.75%. Is this the precursor to several more rate rises? The expert view in the City is that further rises will be gentle and we are unlikely to go back to the 5%-plus rates common before the financial crash. But with 10-year fixes now sitting at, or near, historic levels – starting at just 2.39% – many people are considering locking in their mortgage for the next decade and sitting out any further increases.
HSBC, arguably, has the stand-out 10-year deal at just 2.49% – with no up-front fee. To put that in context, with the bank’s cheapest five-year deal at 1.94%, you are paying only a small premium for 10 years of certainty. The major catch with this, and most other 10-year fixes, is that you need a very large deposit, so it’s a no-go for most first-time buyers.
To qualify for the HSBC deal, the borrower needs a deposit equal to 40% of the value of the home they are buying or re-mortgaging.
Coventry building society has a 10-year deal at an even lower 2.39% rate, but the minimum deposit is 50% and the borrower has to pay a £999 arrangement fee. Halifax has a similar offering at a 2.44% rate.
In total, there are 14 providers offering a variety of rates, and there are some that have higher loans to value (LTVs). This week, the Yorkshire building society launched a series of 10-year deals including one that requires only a 15% deposit, at a 2.79% rate.
But 10-year mortgages are not for everyone. They tend to favour buyers or re-mortgagers who know they will stay in the same house for the next decade. This is because they also come with hefty early redemption charges if something unforeseen crops up and you are forced to pay it off or sell your house.
Typically, the 10-year deals require that the home buyer pay a 5% fee if they quit the deal in the first five years. After that, the early redemption charge starts falling each year, dropping to 4% in year six, 3% in year seven and so on. As an example, someone with an outstanding £160,000 mortgage would face a 5% or £8,000 charge if they had to redeem it half way through.
Charlotte Nelson, mortgage expert at Moneyfacts.co.uk, says: “Lenders are currently seeking to attract borrowers to longer-term deals by making them competitive, and this extra competitiveness has caused rates to fall, unlike the rest of the market. The gap between the average five-year fixed rate and 10-year fixed rate has decreased significantly.”
She adds most 10-year deals are listed as “portable”, meaning you can try to take it with you if you move house. However, lenders will often declare the loan void if any of the terms are changed by the move.
For a five year-term, the HSBC 1.94% deal is the best starting point. Sainsbury’s Bank has a 2.39% five-year deal offering loans up to a more generous 90% LTV, which comes with a £995 fee.
The mortgage broker L&C is always a good starting point for those looking for a new mortgage, and check the HSBC wesbite. Be aware HSBC is very picky and only takes the “cleanest” applicants.