Mortgages Section

The 10 Year Interest Rate Fixes on Mortgages are Getting Very Good Value - A Price War Is Breaking Out

February 2006

Great news because a price war has just broken out with mortgages that fix the interest rate for 10 years or more. These should really appeal to people who are settled in their homes and have no plans to move over the next several years, if at all. However, there is a price to pay, yes the interest rate is excellent but these types of mortgages come with far higher redemption penalties. Read on.

Who Offers 10 Year Mortgage Fixes at under 5%

Currently the list includes -

Woolwich which has the lowest interest rate of 4.67%
Halifax
Nationwide
Norwich & Peterborough
Yorkshire Building Society
Keep an eye out because other firms are bound to offer their competing products soon and somebody is bound to beat the Woolwich rate of 4.67%

The reason why these financial institutions can offer these deals at such good rates is because the international money markets are currently pricing long term UK interest rates at very low levels. This combined with the price war among the different banks/building societies.

What Are The Catches

Well, they're not so much catches as important points to be aware of. Basically, if you take out a 10 year fix today and want to move (*moving is not always a problem, read further down the page) or your circumstances change (a divorce perhaps) then the costs of redeeming the mortgage can be severe, such as 4% on the total value of the mortgage (what Woolwich levies).

But if you feel that your circumstances aren't likely to change, nor are you likely to move house then being able to perfectly budget your mortgage payments for such a long time period is a serious advantage.

What About Flexibility

Flexibility as readers of this website know is very important when dealing with financial products. But there is good news here because the mortgages themselves do offer some flexibility. For example -

The Woolwich deal offers a 5% overpayment facility per year
The mortgage is portable so you can take it with you should you move house but if you need to borrow more capital you'll have to do this through the Woolwich and there is no guarantee that they'll lend you the extra money or that the new rate will be competitive
If you were to be declined then you may well be forced to redeem the mortgage (paying the 4% charge) and then take out a completely new mortgage, although you'd be then free to do this with another bank

Summary

We like these long term interest rate fixes on mortgages but as we've seen they are not for everyone. Note, it is only in the UK that we're all obsessed about short term interest rate deals, whereas on the continent mortgage fixes of 20+ years are more the norm. Finally, don't discount the long term budgeting that can be achieved with these styles of mortgages because it's the their real selling point.