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The 10-year fixed mortgage gamble

The 10-year fixed mortgage gamble

Category: Mortgages

Updated: 23/08/2017
First Published: 10/11/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

We're facing increasingly uncertain times with regards to base rate. Following last week's suggestion from the Bank of England that the rate could stay at its current level well into next year, not to mention the finding that many borrowers don't know what even a small increase in rate could do to their mortgage payments, it's perhaps unsurprising that many are looking for mortgage repayment security.

Opting for a longer term mortgage could be a great way to achieve that. You could be shielded from future – and unpredictable – rate rises by fixing your mortgage rate in advance, which means it won't change no matter what base rate does in the foreseeable future, and as a result, many borrowers are opting for 10-year fixed rate mortgages.

Providers appear to be catching on to this growing level of demand, with our own figures showing that the number of 10-year deals available has almost doubled in just one year. Not only that, but the interest rates offered on such deals have also fallen considerably in the last 12 months, as the table below shows, meaning you can fix your repayments at a record low rate.

Nov-12 Nov-13 Nov-14 Today
Number of 10-Year Fixed Mortgage Deals 17 12 55 108
Average 10-Year Fixed Mortgage Rate 4.78% 4.64% 4.45% 3.54%
Compiled: 10.11.15

"Lenders are clearly targeting borrowers who are fearful of potential base rate rises, with the number of 10-year fixed rate deals available increasing by 96 in just two years," said Charlotte Nelson, finance expert at Moneyfacts.

"This increase in choice is great news for borrowers who are looking for security: locking into a decade-long deal now will allow them to rest assured that their monthly repayments will not go up until at least 2025, which could be seen as a wise move when base rate picks up from its historic low and mortgage rates follow suit, particularly as the average 10-year rate stands at just 3.54% today."

Sound appealing? It's little wonder, and these mortgages will be particularly suitable for those who like a clear budget and who don't want to run the risk of their repayments becoming unaffordable in the next few years. It's a very real risk, too: a mortgage rate rise of just 1.00% on today's average standard variable rate (SVR) of 4.82% would cost borrowers an extra £1,254.69 a year (based on a £200,000 mortgage over a 25-year term on a repayment only basis).

Fixing could easily pay off, and if you can afford the mortgage now, you can be far more confident that you'll be able to keep up with repayments well into the next decade, as well as have peace of mind in knowing that you won't suffer from a rate (and repayment) hike when base rate inevitably rises.

However, while the market has definitely improved for those seeking long-term mortgage repayment security, is it always the best option? Although we know that base rate will rise at some point, we don't know when or by how much, which makes taking out a 10-year deal a gamble – particularly as rates across the overall mortgage market are currently so low. It's important to consider all options and properly calculate your potential repayments, based on a few two-year terms (allowing for base rate increases) as well as your 10-year option.

"Borrowers must also bear in mind that most 10-year mortgages require them to be tied to the deal for the full term," added Charlotte, "so it is vital that they weigh up whether they will need extra flexibility, such as being able to transfer the mortgage to another home. Failing to do so could mean borrowers end up paying a hefty early redemption penalty.

"There is clearly a demand for longer-tem fixed rate mortgages, and with 10-year fixed rates cheaper than ever before, borrowers will have to weigh up the odds and assess whether the gamble will pay off."

Remember, in order to secure a mortgage, credit card or personal loan you need to have a good credit rating. To find out if yours has a clean bill of health, contact a credit check provider, such as Experian CreditExpert to investigate your credit report.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.