The pros and cons of a 10-year fixed-rate mortgage

In December 2019, This is Money reported that ‘long-term mortgage fixed rates have never been as popular in this country as they are abroad’. However, in recent months, the newspaper reports that demand for long-term fixed-rates has seen an increase in the choice of long-term deals, increasing competition and driving down the price of these products.

So, should you consider fixing your mortgage for ten years? We look at the pros and cons of committing to a mortgage deal for a decade.

The pros of ten-year fixed-rate mortgages

Rates are low

November 2019 data from financial analysts Moneyfacts showed that the average rate on a ten-year fixed-rate mortgage fell by 0.32% between November 2018 and November 2019.

The average rate on a ten-year fixed mortgage is now 2.76%. This price drop has been prompted by increased competition between lenders offering decade-long fixes, resulting in the number of deals rising from 101 to 158 in the space of 18 months.

You’ll protect yourself against interest rate rises

Britain has been in a low interest rate environment for the best part of a decade. Indeed, in March 2020, the Base rate will have been under 1% for a full ten years.

The last time the Bank of England raised the Base rate (back in August 2018), the Monetary Policy Committee said that future rises "are likely to be at a gradual pace and to a limited extent".

Even if interest rate rises occur gradually, fixing for ten years means you will protect yourself against any future interest rate increases. Whatever happens to the Base rate, you know that your mortgage repayments won’t change.

Long-term stability

Fixing your mortgage for ten years gives you the stability that your repayments won’t change for a decade. You can budget for the future knowing that you’ll pay exactly the same amount for ten years. You can relax knowing that one of your biggest financial outgoings isn’t going to change in the short term.

What you should consider if you’re thinking of fixing your mortgage for ten years

Early repayment charges

One of the main factors to consider if you’re thinking of fixing your mortgage for ten years is that your deal will come with early repayment charges.

These charges can often be substantial, and it’s not unusual for you to pay between 4% and 7% of the mortgage amount if you repay the mortgage within the fixed rate period. That is between £12,000 and £21,000 on a £300,000 mortgage.

This leads to the next point…

They can be restrictive if your circumstances change

If you have a ten-year fixed-rate mortgage, you will usually have to pay early repayment charges if you want:

• To pay off your mortgage within ten years
• To pay large lump sums off your mortgage in the next decade
• To get a different loan to borrow more or move house before the end of the term

So, if your circumstances change during the fixed period, you could find your ten-year deal quite restrictive. At the very least, if you think you might move home in the next decade you should check with your lender that your mortgage rate is ‘portable’, meaning that you can transfer it onto your new mortgage when you move.

Darren Cook, finance expert at Moneyfacts, says: “During a period of economic uncertainty, borrowers may be considering alternative ways to shield themselves against interest rate fluctuations and assure some stability in household expenses for the longer-term.

“A 10-year fixed rate mortgage is a large commitment, so potential borrowers need to feel confident that their circumstances are unlikely to change in the foreseeable future to benefit from the longer-term certainty that this product provides.”

Short-term fixed rates are cheaper

While a long-term fixed-rate mortgage gives you stability and security, you will often pay a premium for the privilege.

Shorter-term fixed rates are typically cheaper than longer-term deals, so choosing a two or five-year fixed-rate deal will generally result in lower monthly repayments.

In January 2020 Moneyfacts reported that the average two-year fixed-rate mortgage at 60% loan-to-value was 1.81% while the five-year average is now 2.07%. Compare this to the average ten-year fixed-rate mortgage deal which is 2.76%.

Get in touch

If you’re a doctor, dentist, locum, consultant or other healthcare professional looking for a new mortgage, we can help. Visit our dedicated site at Medic Mortgages or get in touch. Email info@medicalandgeneral.co.uk or call (01404) 515544 to find out more.

Please note

The interest rate you will obtain will depend on your personal circumstances and the lender’s criteria at the time.

Your property may be at risk if you do not maintain payments on a mortgage or other loan secured on it.

All rates quoted are correct as of 14 January 2020.