Fix your mortgage at 4.99% for 10 years

With the Bank of England expected to hold interest rates at 0.50% for at least another year many homebuyers and those remortgaging are looking to lock into a fixed rate mortgage for at least five years.

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Longer-term fixed rate mortgages give peace of mind that your payments won’t change for several years, whereas if you only lock in for two years, you could end up facing a nasty payment shock if your deal expires just as rates have started to go up.

Leeds Building Society has just cut its 10-year fixed mortgage rate by 1% to 4.99%, making it the market-leading deal over this time frame for those with a deposit of at least 20% to put down.

But there are risks involved in locking in to a fix for such a long period - we examine the new deal and explain who it is likely to suit….

What’s on offer

Leeds has reduced the rate on its 10-year fixed rate mortgage by 1% - from 5.99% to 4.99%. This rate is available on loans of up to 80% of the property value and there is no higher lending charge.

For those who want to pay down their mortgage quickly, 10% capital repayments are allowed each year, without penalty.

Kim Rebecchi, marketing director at Leeds Building Society, said: "This product speaks for itself and delivers peace of mind and security, over a large part of a typical mortgage life, at an affordable rate.

The mortgage is fully portable, so should a borrower move home they can take this product with them, providing even further flexibility."

The deal has a £199 booking fee and there is an £800 completion fee on mortgages up to £500,000.

If you have a slightly larger deposit to put down, however, you can find even lower rates available. Yorkshire Building Society, for example, is currently offering a 10-year fixed rate at 4.19% if you have a 25% deposit.

This deal has an arrangement fee of £995, but if you would prefer to pay a smaller fee, the building society offers an alternative 10 year fixed rate deal at a slightly higher rate of 4.39% but with a lower £295 fee.

The drawbacks

While long term fixed rate mortgages are usually portable, you must bear in mind that, if you are moving to a property that requires a bigger mortgage, you may have to borrow any additional money you need at a higher rate - and there are no guarantees that your mortgage provider will agree to lend you any extra money in the first place.

If you want to redeem the mortgage during the fixed rate period for any reason, then you will usually have to pay hefty repayment charges.

For example, with the Leeds deal, there are tapered early repayment charges of 6% of the amount redeemed in years 1 and 2, 5% in years 3 to 6, 4% in years 7 and 8, 3% in year 9 and 2% in year 10.

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Other alternatives

If you don't want to lock into a fixed rate mortgage for as long as 10 years, then there are plenty of competitive five-year fixed rate deals currently available.   HSBC is currently offering the lowest five-year fixed rate mortgage at just 3.28%, with a £1,999 arrangement fee. You need a deposit of at least 40% to be eligible for this deal.   Chelsea Building Society is charging a marginally higher 3.29% on its five-year fixed rate deal, which requires a deposit of 30% and comes with a £1,495 arrangement fee.   Other options include ING Direct's five-year fixed rate of 3.89% to those who have a deposit of at least 40% to put down, which comes with a free basic valuation and free basic legal work.   There is no arrangement fee with this deal.

Alternatively, Clydesdale Bank is offering a five-year fixed rate mortgage at 3.79%. This mortgage is available to those who have a deposit of 35% or more to put down and comes with a £999 arrangement fee.

Like ING Direct, Clydesdale Bank offers a free basic valuation and free basic legal work with this deal. With all these deals, early repayment charges apply during the fixed rate period.

Verdict

Longer-term fixed rate mortgages such as the Leeds deal offer are likely to appeal to those who are expecting to remain in their home for several years and who prefer to have payment certainty over a lengthy fixed term.

However, if you aren’t sure what the future holds, or whether you will want to move in the next few years, then a shorter-term fixed rate or a tracker deal may be a better option, as this will give you more flexibility

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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