The cheapest ever 10-year fixed rate mortgage

Fix your mortgage for a decade for under 3%

The mortgage price war gained momentum last week when Barclays launched the lowest ever 10-year fixed rate deal.

Barclays' 10-year fix, offered under the Woolwich brand, comes with a rate of just 2.99% and a £999 fee. However to fix your mortgage rate under 3% until 2025 you'll need at least a 40% deposit or equity in your property. Borrowers with a 25% deposit can fix for 10 years at 3.99%.

Barclays' product launch comes after several other lenders launched competitive 10-year deals at the end of 2014. In December Santander and TSB both launched 10-year fixes starting at 3.44%.

Increasing choice in the 10-year fixed market

The past year has seen a massive increase in the number of 10-year fixed rates on offer. According to financial analyst Moneyfacts, this time last year there were just eight 10-year deals for borrowers to choose from. By October that number had risen to 22, but just three months later the figure now stands at 77. This means the 10-year mortgage sector is over five times larger than it was in January last year.

Historically borrowers have favoured shorter term deals, but the low rates now available on longer term fixes mean fixing for longer is becoming increasingly attractive.

According to Moneyfacts, the average rate for a 10-year deal fell from 4.23% in January 2014 to 4.17% today, the lowest rate ever recorded for this sector.

In some other countries long-term fixes are the norm. In the US for example, it's commonplace to fix your mortgage rate for 25 or 30 years.

Pros and cons of 10-year fixes

If you fancy fixing your mortgage rate for 10 years, now is a good time to do it with so many great rates on offer. You can then sit back and know for certain what your mortgage payments will be for the next decade.

One advantage of 10-year fixes is that you won't have to go through all the hassle of remortgaging again in two or five years, working out costs, or worrying about your credit record or equity in your home.

Traditionally borrowers have shied away from longer-term fixes for fear of missing out on better rates that become available later on. But with the Base Rate at an all-time low and the next movement definitely being upwards, chances are you shouldn't be too concerned about better rates coming along later.

However, there are several things borrowers should watch out for if they plan to fix for 10 years. For example, is the loan portable? This is where you take your existing mortgage with you when you move home. You might not be planning to move house, but a lot of things can change in a decade.

It's also a good idea to check the deal's early repayment charges (ERCs). Barclays' 10-year fix, for example, comes with some hefty ERCs. Borrowers wanting to redeem their mortgage early will have to pay 6% of the balance repaid for the first seven years and 3% in the last three years.

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How do rates compare?

Whether you should fix for 10-years could well depend on the rate you're currently on. If you're one of the lucky borrowers who's on an ultra-low tracker with a current pay rate of less than 2%, you'll be wise to stay put until a Base Rate rise looks more imminent.

If you do need to remortgage, or are buying your first home, you can get a much cheaper rate by opting for a two-year or five year deal. For example, HSBC is offering a two-year fix at 1.29% with a £1,499 fee. You'll need a 40% deposit or equity to be eligible.

Monthly payments on a 25-year £200,000 home loan would be £780.28 with HSBC compared to £947.38 on Barclays' 10-year deal.

HSBC subsidiary First Direct is offering a five-year fix at 2.39% to borrowers with a 35% deposit. The deal comes with a £1,450 fee you need to factor in.

Doing the sums

Big arrangement fees, such as those levied by HSBC and First Direct, can mean a cheap rate doesn't necessarily mean a cheap mortgage so it's important to do the sums. This means working out exactly how much you'll pay in total (monthly repayments plus fees) over the fixed term, whatever length of fix you opt for.

For example, Yorkshire Building Society is offering a two-year fix at 1.39% with a £975 fee. Over two years, with a £200,000 mortgage, this would cost of a total of £19,924 compared to £20,225 with HSBC. So the Yorkshire mortgage works out £301 cheaper, despite boasting a larger interest rate.

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The cheapest ever 10-year fixed rate mortgage

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.


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