Rates on 10-year mortgage fixes are cheap right now – should I be locking in for longer?
Turmoil in the markets has increased the attractiveness of longer-term mortgage deals. Currently, interest rates on many 10-year fixes are not far off those of shorter deals. In fact, the rate on the cheapest 10-year fixed mortgage is actually lower than any two-year fix.
Normally, mortgage interest rates increase the longer you fix for. But in recent weeks, this logic has been reversed by some lenders – including Nationwide, Barclays and TSB – as they have made it cheaper to fix for 10 years than for two years.
Only a year ago, interest rates on cheap 10-year fixes were just above 2%, compared to less than 1% on both two-year and five-year fixes. But now that gap has narrowed substantially, and in some cases, it's reversed.
Here's how rates on a 10-year fix compare with two-year and five-year deals
Here's an example of how the best 10-year fixed-rate mortgages (from Barclays) compare with the best two-year and five-year equivalents on the wider mortgage market:
Loan-to-value (LTV) (2) | 2-year fix | 5-year fix | 10-year fix |
|---|---|---|---|
60% | 4.95% | 5.14% | 4.85% |
75% | 4.95% | 5.14% | 4.96% |
90% | 5.12% | 5.14% | 5.59% |
(1) Based on a £200,000 property. Be mindful that arrangement fees can make a big difference to what you pay overall for a mortgage. (2) The proportion of the property's value you're borrowing as a mortgage. The remainder will be paid via a deposit or equity in your existing home.
MoneySavingExpert.com founder Martin Lewis said: "The advantage of a 10-year fix is simple: it gives you budgeting certainty. Specifically, you'll know exactly what you're going to pay each month – in other words, you can (hopefully) afford your mortgage. That certainty has a value in its own right, which is separate to how cheap the mortgage is.
"Of course, in these unprecedented times, nobody knows what's going to happen over the next decade. I certainly cannot promise that if you look back with hindsight in 2032, that this will have been the cheapest route.
"But because that situation is unknown, instead of focusing on the external circumstances – such as where interest rates might be in future – look at your internal circumstances. Are you planning on staying in your home for the next 10 years? If you are, and what you value is certainty, then a 10-year fix has a real appeal because the rates are relatively cheap.
"The more you value certainty, the more you should be thinking about fixing for longer."
Can you get a 10-year fix?
To qualify for the best 10-year fixed-rate mortgage deals, you'll need at least 25% as a deposit or equity, and at least 40% if you want the top rates.
Where you've less than this, interest rates on 10-year fixes are actually much higher than they are for two-year fixes. For example, rates for two-year fixes at 90% loan-to-value (LTV) – the proportion of the property's value you're borrowing as a mortgage (the remainder will be paid via a deposit or equity in your existing home) – begin at 5.12%, while rates on 10-year fixes at 90% LTV start from 5.59%.
You'll also need to be able to afford any mortgage arrangement fees – though these can normally be added to your mortgage balance if you don't want to pay it upfront. This can set you back anything from £100s to £1,000-plus.
What's the risk of getting a 10-year fixed mortgage deal?
In uncertain times such as these, locking in can provide much-needed certainty. You know what you'll be paying, and if interest rates are to go up over the long term, you would have benefitted.Yet there are three risks of locking in for as long as a decade, which are:
It'll be tough to get out of the mortgage if it's no longer good value in a few years' time.
If interest rates fall over the 10-year period, you could look back at the end of your term and realise it would have been cheaper to take multiple shorter fixes. However, typically you need to pay an early repayment charge (ERC) if you want to ditch the deal mid-term and switch to a new one. See our
guide for more.
There's no guarantee you'll be able to take the mortgage with you if you move home.
While many mortgages are 'portable' meaning you can take them with you – penalty-free – if you move to another property there's no guarantee. For example, if the property you want to move to doesn't fit your lender's criteria. If you can't port and still want to move, you will have to pay an early repayment charge. For more on how porting works, see our
guide.
You'll likely be charged if you want to clear the mortgage early.
For example, if you come into some money. Lenders tend to allow you to overpay by 10% of your overall mortgage balance each year, but overpay by more than that and you'll likely face having to pay an ERC.
Full details are in our free 62-page PDF remortgage guide (there's also our free 53-page first-time buyers' guide) but in brief...
Benchmark what type of rates are out there. Our mortgage comparison tool will help you see what's available currently and compare it against what you're paying now.
Dig out the details of your current mortgage. Such as... What's the rate? What type is it? When's the intro deal over? When must it all be repaid? Will you be penalised to switch deals? What's the loan to value?
Check out your existing lender's cheapest deal. This is known as a 'product transfer'. Use this rate as benchmark to beat.
If you've savings, use them to bag a cheaper deal. If you still owe more than 60% of your home's value on a mortgage, the more you can do to drop an LTV band, the cheaper your remortgage will be.
Check out the size of any possible savings on our mortgage calculators. Stick your digits in here... Basic mortgage calculator - including what it'll cost | Compare two mortgages | Compare fixed rate mortgages | 'How much can I borrow?' guesstimator
If you're thinking of applying, it's all about whether you'll be accepted. Lenders need to check if you're 'affordable' and whether you could meet repayments if rates shot up. So see our 17 ways to boost your mortgage chances and don't forget to Check your credit report for free. Then read up on how to Improve your creditworthiness.
If you're serious, speak to a broker - they're currently more important than ever. See our full help on how to find a good broker.
Why are 10-year fixes so cheap right now?
Interest rates on all new mortgages have shot up over the past year, in part because of several hikes to the Bank of England base rate. Only last month, the base rate rose again to 2.25%. At the start of the year it stood at just 0.25%.
Further uncertainty in response to the Government's recent mini-Budget has caused a rapid repricing of mortgages, as the markets are now working on the fact that the base rate could rise to nearly 6% by next spring. Mortgage lenders have subsequently pulled cheaper deals that look unaffordable in the future.
As a result, the cost of longer-term mortgages is, in some cases, cheaper than shorter-term mortgages. This essentially means that markets are predicting interest rates will be higher only over the short to medium term (two to five years) and then will drop over 10 years.
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10 September 2024
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