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The rise of 10-year mortgages

The rise of 10-year mortgages

Category: Mortgages

Updated: 26/11/2014
First Published: 26/11/2014

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 It is now over 6 months old so the content may be out of date.

Fixed rate mortgages have long been the format of choice for borrowers seeking to keep their budgets in check. This kind of deal means your payments are fixed for the length of the term, so even if market rates change, your repayments won't – and that can make the world of difference to your financial peace of mind.

Recently, there's been a growing preference for longer-term fixed rates, largely thanks to the prospect of a base rate increase in the next year. Borrowers want to ensure their repayments stay as low as possible for as long as possible, and that means even 10-year fixed rate mortgages are growing in popularity. But would you fix for that long?

Growing market, falling rates

Research from Moneyfacts can reveal that the number of 10-year fixed rate mortgage deals on the market is rising fast, as the battle to keep mortgage borrowers on side has moved on from the popular two and five-year fixed rates to an explosion of 10-year deals. The figures show that there were just 12 such mortgages available in November 2013, but this has rocketed to 51 today – 10-year deals may still only take up a small proportion of the market, but their growth is clear.

And, as an added bonus for customers, the interest rates offered are falling alongside this increasing level of choice. In the last month alone the average rate for a 10-year deal fell from 4.98% to just 4.33%, the lowest level ever recorded for this kind of mortgage. The table below shows the evolution of 10-year deals over the last year.

Nov-13 May-14 Oct-14 Today
Number of 10-year fixed rate deals 12 20 22 51
Average 10-year fixed rate mortgage 4.64% 4.69% 4.98% 4.33%
Source: Compiled: 25.11.14

As you can see, the market's changing rapidly, with the launch of 29 new 10-year products in the last month alone. Rates have fallen just as sharply after posting a clear increase in October, and like the rest of the market, have now reached fresh lows.

So, just what's the reason behind it? Well, from a lending perspective, providers could arguably be feeling the pressure to use their reserves of cash from the Funding for Lending Scheme, as they need to show they've lent money out in mortgages and that their mortgage books have grown. This could have partly led to the increased availability of these kinds of deals, but providers also need to cater for the rising demand from borrowers.

The prospect of increased monthly mortgage repayments when base rate rises means borrowers are getting jumpy, and this ultimately means they want to fix for the long term. Providers are realising that so are launching products to suit, and with competition across the market being so fierce, they're lowering rates to attract these borrowers. Those rates may be higher than for the majority of two-year fixed rate deals, but having the security that your repayments won't change could well be worth paying for. There's no guarantee of what rates will be like in a few years' time and they could rise sharply in line with base rate, so that 4.33% could potentially end up being an ultra-low rate.

Sylvia Waycot, editor at, comments:

"The two-year fixed rate mortgage is the favoured choice of many borrowers who like the structure of knowing what their monthly payments will be, but also the flexibility of a short term.

"However, while 10-year fixed rate deals may cost more per month than the current two or five-year fixed rates, over the life of the mortgage – bearing in mind interest rates are unlikely to fall – borrowers are potentially locking into the cheapest deals for a whole decade, especially if and when shorter fixed term rates do start to rise.

"A borrower who favours two-year fixed rate mortgages will have had five such deals, as well as five sets of arrangement fees, in the time it will take for one 10-year deal to expire – potentially, that could work out more expensive in the long run."

It's the guarantee that repayments won't change that's likely to be the most appealing factor to borrowers, but of course, there are still other aspects to bear in mind, as Ms Waycot points out: "When considering a 10-year fixed rate, it's important to make sure that the deal is portable, as you may need to move to a bigger or smaller home in the future and you won't want to incur early redemption fees, which can be high."

The key is to do your research, and our best buy tables will be a great place to start. You need to think carefully about every aspect, from the rate you'll pay to the terms and conditions of the mortgage, but if you're seeking long-term security over your mortgage payments, then a 10-year mortgage could be worth considering.

"The stage is set for borrowers to embrace the longer fixed rate mortgage; there are more on offer and they are cheaper than ever before," concluded Ms. Waycot. "The question is, are borrowers prepared to fix for a decade at a time, bearing in mind the popularity of the short-term fixed?"

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