Looking to the future

Looking to the future: forward-thinking homeowners have decided to lock into a mortgage until 2022 at a 3.99 per cent rate

Despite repeated political calls for more of them, home loans fixed for as long as ten years remain a niche product.

However, with borrowers already adopting a longer term outlook as more people considering five-year fixes over two year deals and a bargain basement rate on offer, the N&P mortgage proved tempting to borrowers.

The best ten-year fixes left on the market are now at a rate closer to five per cent.

N&P, part of Yorkshire Building Society, has not revealed how much money it had allocated to the ten-year fixed rate offer, but relative to more popular products, such as two and five-year fixes the funding was likely to be small.

David Hollingworth, of mortgage brokers London & Country, says that Britain’s mortgage thinking is getting more long-term, with the gap closing between the number of people opting for the most popular two-year fixed rates and the increasingly favored five-year option.

Rates vs. fees

The general rule of thumb is that the bigger your mortgage the more worthwhile it is paying a bigger fee to get a lower rate.

But remember this only works on flat-fee mortgages, not those that charge a percentage of the loan.

This has come as record low interest rates and cheap money market funding costs have allowed lenders to bring the best five-year deals down below 3.5 per cent.

The big temptation with the N&P ten-year fix, says Mr. Hollingworth, was the 3.99 per cent rate, which took it into the territory of those best five-year fixes, but he said that most borrowers still remain reluctant to lock in for as long as a decade.

He said: ‘Usually you expect to pay quite a lot more than a five-year fix for a ten-year deal. From a rate perspective this never looked expensive.

It’s hard to imagine you would be kicking yourself over ten years on the rate, but you are locked in with early repayment charges.’

That lock-in, explains, Mr. Hollingsworth, is what puts many people off taking such a long-term deal, especially younger homeowners,  who may not feel they have their home for life and have aspirations to climb the housing ladder or may one day need to move home for work reasons.

He said: ‘Where they do work is for a person getting towards the stage where perhaps the kids have gone, they have ten years or so left on the mortgage and they want to start to enjoy life and can sit back with a fixed rate mortgage and don’t have to worry.’