Introduction of 15 year fixed rates
Wednesday 28 August, 2019
Longer-term fixed rate mortgages introduced for residential and buy to let market
I have often written in previous articles such as - How do you find the right fixed rate deal, about the greater choice and flexibility in mortgage products, with the introduction of 10-year fixed rates for residential mortgages. Recently a new mortgage product has been introduced that offers even more choice - the introduction of 10-year fixed rate mortgages for buy to let investors. Also 15-year fixed rate mortgages are now available in the residential mortgage market. Virgin Money is one of the first mortgage lenders to offer these long-term fixed rates.
In this article I will discuss in greater detail what this actually means for the mortgage market, whether these products are suitable and approximate interest rates of these longer-term products.
Are fixed rate mortgages suitable for everyone?
Benefits of taking out a fixed rate mortgage
Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, Hertfordshire said:
‘These longer-term fixed rate mortgage products may not be suitable for everyone, but the option of longer-term fixed rates is a good thing especially for those more risk averse and conservative borrowers. Virgin Money has been very innovative in offering this product at a time when people are concerned about Brexit, the future of the economy and the direction of future interest rates. The current situation may encourage people to switch to longer-term fixed rates to help negate this fear. Therefore, it wouldn’t surprise me to see a lot of consumers opt for these new mortgage deals. The benefits of these type of mortgages is that you will know exactly what you are paying for the next 15 years on a residential mortgage so if you are in your final home and don’t plan to move house you could currently get a 15 year fixed rate as low as 2.55%. Even on a buy to let mortgage you can currently get a 10-year fixed rate mortgage deal as low as 2.46% which is relatively low. If rent goes up over the next 10-years your mortgage payments won’t increase which should lead to increased profits on any rental portfolios.’
Fixed rate mortgages are not suitable for everyone
Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, Hertfordshire continued:
‘However, there are also some downside risks in taking out mortgage products with such long fixed rate terms which is why I must reiterate these long-term products are not suitable for everyone. First of all, remember if you are a young first-time buyer or a residential home mover and you don’t envisage staying in the property for the full 15-year period, please do not fix your rate for 15 years. This is because you will possibly have to pay an early repayment charge, currently as much as 8% of the mortgage loan if you decide to redeem or break your mortgage early (e.g. moving property). To give you an idea the average mortgage loan in London is approximately £250,000 so if you decide to move home in the early years of your 15-year fixed rate mortgage it could cost you as much as £20,000. On the investment buy to let mortgage the early repayment charge wouldn’t be too dissimilar to the early repayment charge. It could currently be as much as 7% of the loan on a 10 -year fixed rate mortgage. As a result, you may not be able to take out any increased growth in your property for 10 years which is usually what investors like to do to help expand their portfolio and buy more properties. Therefore, buy to let mortgages on a 10-year fixed rate term may be more popular in areas where the rental yields are good but the capital growth is not as prominent.’
Get mortgage advice before fixing your mortgage
Overall, the introduction of even longer-term fixed rate mortgages increases our options but at Thomas Oliver we recommend you get mortgage advice from one of our qualified mortgage brokers before locking yourself into these mortgage products due to the high early repayment charges. When one of our mortgage advisers meets a client we always make sure the mortgage advice is personal and unique to their situation, as a long-term fixed rate mortgage may suit one client but be detrimental for another. If you have any queries or would like a free mortgage consultation, please do not hesitate to get in contact with our mortgage broking team on 01707 872000 to see how Thomas Oliver could save you money and make your money work for you.
For more information read: How do you find the right fixed rate deal
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.