Is a ten-year fixed-rate mortgage the way forward?

10 year mortgage2

Recent research has revealed that there is an ever-increasing trend amongst UK homeowners looking to secure their long-term financial security, of taking out ten-year fixed-rate mortgages.

This could be a worthwhile option to explore should the right circumstances come around. A mortgage like this means you know exactly what you’ll be paying for the next decade.

What is a ten-year fixed-rate mortgage?

The ten-year fixed-rate mortgage allows homeowners to pay a fixed sum over the period of the decade, meaning that the same fee is paid regardless of interest rates, which typically cause repayment funds to fluctuate in line with the Bank of England’s base rate of interest. Essentially, they provide a clear picture of what your repayments will be for the next ten years.

What do UK homeowners think?

Of the 2,000 homeowners that took part in the Mortgage Advice Bureau’s research, 60 per cent were not aware that this was a possible option for them to explore. Over two thirds of those who took part in the study said that the main reason that they would consider undertaking such a step, would be because of the financial peace of mind that the decade-long fixed rate mortgages provide.

What makes them so appealing?

Aside from the fact that borrowers will know what they’ll be paying for the next ten years, these mortgages attract attention due the fact that they can aid with financial planning and potentially free up household disposable income. These mortgages also have the additional benefit in that they can prepare for instances such as children growing up and going to university, which will likely require funds from the Bank of Mum and Dad.

Another factor that makes them appealing is the certainty they provide, particularly in the midst of the ambiguity surrounding the UK’s economic future with regards to Brexit, and the implications this may have on interest rates.

The Bank of England’s base rate of interest has recently risen from a historically low rate. When the rise was announced, Mark Carney, governor of the Bank of England, suggested that the uncertainty surrounding Brexit implies the rate could rise further, so if you are considering a ten-year fixed-term mortgage as an option, now could be the ideal time to go ahead with it.

Brian Murphy, head of lending for the Mortgage Advice Bureau, said: “The number of customers who would consider taking a 10-year fixed-rate comes as no surprise. 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 rates rises.”

Are long-term fixed rates always the solution?

Remortgaging to a ten-year fixed-rate could be the way forward. If you’re wanting to know exactly what you are going to pay for the next decade to help you to be more flexible with your finances, it certainly has its benefits, but you must bear certain factors in mind too.

Depending on your life stage, you may be at the point where your children are growing up and going to university, so any extra cash is rather valuable. On the other hand, if you don’t have such expenses and outgoings decrease if you’re no longer raising a family, paying more of your mortgage off could be more appealing.

However if you have a fixed rate mortgage you will be susceptible to early repayment charges. In addition to this, if you decide you want to move home within the next ten years, this could prove to be a stumbling block.

Brian added: “For 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. It’s always worth bearing in mind that the majority of fixed-rate deals have significant Early Repayment Charges…so it’s worth checking the small print and doing your sums to decide what works out best for you.”

The current trend shows borrowers are demonstrating an increased level of prudence and consideration in what is arguably their biggest financial commitment. The growing popularity of ten-year fixed-rate mortgages suggest that homeowners are favouring peace of mind instead of having to worry about potential increases in repayments.