Act now for a decade’s worth of peace of mind
There are few things in life that can provide peace of mind for an entire decade, but a 10-year fixed rate mortgage gives you the certainty of knowing exactly what your mortgage payments will be for the next 10 years. There has never been a better time to switch to a 10-year fixed rate, but the window of opportunity is closing, so you need to act now.
The average 75% LTV 10-year fixed rate is currently 2.78%, according to data from the Bank of England, while the average 2-year fixed rate at the same LTV is 1.72%. This means the difference between fixing for 2 years and fixing for 10 years is just 1.06%, which is as low as it has ever been. At the beginning of 2015 the difference between the average 2-year fixed rate and the average 10-year fixed rate was 1.94%.
The lowest 10-year fixed rate mortgage is currently available for 2.39%, with no repayment penalties after the first 5 years.
Source: Private Finance analysis of Bank of England data, 28.06.18
To put this in some context, on a 25-year term repayment mortgage of £250,000, the monthly cost of the average 2-year fixed rate would be £1,026 a month. The monthly cost of an average 10-year fixed rate would be £1,157 and the monthly cost of the cheapest 10-year fixed rate on the market would be £1,108.
Given that interest rates are still historically low, and using this example, there is a good chance that if you were to follow a pattern of opting for 2-year fixed rate mortgages for the next 10 years, at some point before you get to 2028, your payments could be significantly higher than £1,108.
In June the Bank of England Monetary Policy Committee held the Base Rate at 0.5%, but it signalled very strongly that rates will begin to rise soon. In a rising rate environment, the cost of longer term money will increase disproportionately to short term money, which means that the gap between the cost of 10-year fixed rates and the cost of 2-year fixed rates will begin to open again.
So, if you like the idea of knowing what your mortgage payments will be for the next decade, now is the time to act to secure a low-cost 10-year fixed rate mortgage.