Decade-long fixed mortgages start to rise from record lows

20 February 2018

Borrowers may have started to see lenders adjust their mortgage pricing over the last few weeks, which is due to the speculation of an interest rate rise by the Bank of England to take place earlier than expected in 2018. One unique area of the market that is also now starting to shift is the 10-year fixed arena.

According to the latest research by moneyfacts.co.uk, the average rate on a 10-year fixed mortgage has crept up from its record-low rate seen at the start of February. Today, the average rate has breached the 3% mark, sitting at 3.05%, whereas less than three weeks ago it stood at 2.96%.

Rachel Springall, Finance Expert at moneyfacts.co.uk, said:

"In times of uncertainty, a decade-long fixed mortgage could be a safe-haven for borrowers looking to secure their mortgage payments over the longer-term. As consumers prepare themselves for a potential base rate rise this year, or possibly even multiple ones, their thoughts will be on how to safeguard themselves from an increase in interest rates.

“Lenders are appearing to retain competitiveness and variety over their 10-year fixed deals, to catch the eyes of consumers looking to remortgage or buy a home. However, it’s unavoidable that lenders will have to start pricing in fluctuations in long-term SWAP rates and start to adjust their range, in order to cope with the changing economy.

“Another big influence on pricing could be next week’s closure of the Term Funding Scheme (TFS). The cheap funds made available through Government lending initiatives to mortgage providers will eventually dry up. There is a four-year window set in place for the last drawdown, so the clock is officially ticking on how long lenders can prolong the lowest rates.

"However, a decade-long fixed mortgage isn’t without its dangers, as borrowers need to feel pretty certain that their circumstances won’t change and that they will not need to amend their deal. This is due to the redemptions charges that apply to most 10-year fixed mortgages, and they can be quite hefty.

“Borrowers may instead turn to five-year fixed mortgages, where they will find cheaper rates and are tied in for shorter period. However, there is no telling what interest rates will be like in five years’ time, so some may prefer to lock into decade-long fixed deal for some peace of mind.

“Whatever borrowers decide to do, they could benefit from working out the true cost of any deal. If it’s possible, they could take the low interest rate environment as an opportunity to overpay on their mortgage to raise the equity in their home and reduce the term of the loan."

Best Buys and true cost scenarios available upon request.