Over a third of homeowners with a mortgage said they would consider fixing their mortgage for a decade, according to the latest consumer research from Mortgage Advice Bureau.
Almost 68% of those surveyed feel that fixing their mortgage for ten years would give them financial peace of mind, while 56% believe that interest rates will go up.
Brian Murphy, head of lending for Mortgage Advice Bureau (pictured), said this rise comes as no surprise due to an increase in the number of lenders bringing new products to market over recent years.
“Borrowers clearly want to know that they are making a sensible financial decision and that they are safeguarding themselves against potential financial risks such as interest rate changes.
“Knowing exactly how much your mortgage repayments are going to be for the next decade offers obvious reassurance for consumers, regardless of what happens to the Bank of England base rate, which, as we are already aware, is almost certain to increase at some point this year.”
“Decade-long fixed rates have been available for some time, however there is a lack of consumer awareness of them, as the results of the research suggest. But once potential borrowers discover that this type of product is available, the appeal for some is easy to understand. That’s because the security of a ten-year deal will see certain types of borrowers through to a significant point in their lives, such as perhaps seeing children off to university or reaching retirement age.
“Alternatively, some borrowers may find that ten years is the length of time they have left on their mortgage, and therefore fixing for the remainder of the term provides an inevitable amount of reassurance.
“However, for other borrowers, fixing for a decade may not provide the flexibility they need in the shorter term, for example if they need to move home within the next few years, in which case a ten-year fix may not be right for them. It’s always worth bearing in mind that the majority of fixed-rate deals have significant Early Repayment Charges associated with them, so it’s worth checking the small print and doing your sums to decide what works best for your own circumstances.”
“That aside, what is encouraging to see is that there is an increasing level of prudence and consideration being applied to what is for many their biggest financial commitment. That ten-year fixed-rate products are rising in popularity demonstrates a level of responsibility in the advice being offered to consumers and, in turn, their attitudes toward mortgage debt.”
Shaun Church, director at mortgage broker Private Finance, told Mortgage Solutions: “Ten year fixes are an attractive proposition for homeowners looking for financial security and certainty. With rate rates likely to increase in the near future, locking into a ten year fix can buy borrowers a decade of immunity from further rate rises.
“Previously, borrowers would have to pay a premium to lock in for the long term, however Private Finance’s analysis shows that fixing for ten years as opposed to two will only cost borrowers 1.02% more in terms of monthly repayments. It’s important to note however that these long term products aren’t for everybody, and are best suited to borrowers who have no plans to move in the near future.
“Brokers could be doing a lot more to raise the awareness of ten year fixed products, educating clients that these products are becoming increasingly affordable and will save a lot of money in the long term as interest rates rise. Lenders also have a part to play in innovating these products so borrowers don’t have to sacrifice flexibility for security. Lenders should look to follow the lead of Coventry Building Society who have wavered early repayment charges after five years – offering the borrower the security of a ten year fix, with the flexibility of a shorter term product.”
Alexander Smith, senior mortgage and insurance adviser at Capricorn Financial, told Mortgage Solutions: “I think it depends on where a person is in life as I don’t believe a first time buyer should be encouraged to embark on a 10 year fixed rate. The exit penalties on fixed rates, whilst improving, can make longer fixed periods better suited to those less likely to disturb the mortgage by moving home, transferring equity as a result of a break up and so on.”