Long term fixed rate mortgage costs
Long term fixed rate mortgage costs increase despite base rate cuts
Fixed rate mortgage terms reach 30 years as the average rate on fixed rate mortgages with 10-year terms or longer increases despite base rate decrease...
The number of fixed rate mortgages with terms of ten years or longer has increased in the past year as lenders seek to cope with demand for long-term fixed rate deals, according to MoneyExpert.com.
However the independent financial comparison website says interest rates payable on lengthy fixed mortgages have increased as banks aim to reduce their exposure to high risk borrowers. Over the same period the Bank of England has steadily decreased its base rate of interest.
The MoneyExpert.com analysis shows that there are now 132 individual fixed rate mortgage products on the market with terms of ten years or longer - around 11.5 per cent of all fixed rate deals. Typically a homeowner can expect to pay an initial rate of 6.14 per cent, although initial rates payable do go as high as 7.59 per cent.
However in April last year only 8.9 per cent of the mortgage market offered fixed deals with 10 year terms or longer and the average interest rate was just 5.89 per cent.
Sean Gardner :
"Long term fixed rate mortgages are here to stay. The Chancellor himself announced his support for lengthy fixed deals in the Budget and lenders have already started to react to demand by adding long term products to their portfolios.
"However even though there is now more choice for homeowners, that choice also comes at a higher cost. Average rates on long term deals are up, meaning the consequences of making such a big decision are even more severe. If interest rates start to spiral, you'll be laughing. But if they continue to drop then you could have saved money sticking to shorter term arrangements."
MoneyExpert.com research shows that the longest fixed rate term on the market is 30 years with Manchester Building Society's Long Term Fixed Rate mortgage. However the majority of long term deals are available for between 10 and 15 years.
But the website is warning homeowners to carefully consider whether they can afford the mortgage they are applying for. Recent research from MoneyExpert.com showed that some 463,000 people failed to meet a mortgage payment deadline in the six months from July 2007, representing around four per cent of the 11.8 million outstanding mortgages.
Sean Gardner added:
"Homeowners could be forgiven for thinking that the recent reduction in interest rates by the Bank of England would ease the strain on their finances. But with average rates on fixed mortgages, whatever the term, on the increase, it's no wonder people are struggling to meet their repayment deadlines.
"Mortgage providers are rightly nervous about exposing themselves to customers who may not be able to repay their loans, so it's understandable that the cost of a mortgage is on the up. People should think carefully before agreeing to high-cost, long-term deals because making the wrong decision for you could be significant."