Here, we take a look at the pros and cons of locking into a fixed rate for five years or more, as well as highlighting some of the best mortgage deals currently available….
Pros of long term fixes
While there are plenty of low cost two year fixed rate mortgages currently available, many experts are predicting that rates may only start to rise after another year or more, which means locking in for such a short period of time may not be the best decision.
Opting for a longer-term fixed rate deal, however, will give you peace of mind that you know exactly what your mortgage payments will be for several years, and there are some cracking deals available at the moment.
Ray Boulger, of independent mortgage adviser John Charcol, said: "The time has now come to consider fixing your mortgage because the collapse of over 0.5% in gilt yields over the last month, resulting in lower swap rates, is now being reflected in some significantly better five year fixed rate mortgages, with the cheapest rates under 3.5%.”
Chelsea Building Society, for example, has a five year deal fixed at 3.29%, available to those with a deposit of 30% to put down or the equivalent amount of equity in their homes if remortgaging.There is a steep £1,495 arrangement fee with this deal.
Alternatively, Yorkshire Building Society is offering a 3.39% five-year fixed rate at up to 75 per cent loan to value, with a £995 arrangement fee.
Barnsley Building Society similarly is offering a 3.49% five-year rate at the same loan to value with a 0.25% fee. If you want to lock in for longer, then Chelsea is offering a rate of just 3.99% for ten years to those with a minimum deposit of 30%, or the equivalent amount of equity in their property if remortgaging.
This deal comes with the same sized £1,495 arrangement fee as the five year deal, although you can opt for a slightly higher rate of 4.19% and a lower arrangement fee of £195.
Chelsea is also offering a seven year fixed rate at 3.69% with a fee of £195. These deals are available to those with more than 30 per cent equity in their homes.
Drawbacks of locking in for several years
While the certainty of knowing exactly what you will pay for several years is appealing, remember that if rates remain very low for many years to come, you could end up paying over the odds for your loan.
It is also worth bearing in mind that if you want to move in the next few years, transporting your mortgage to a new property may not be as straightforward as you think, particularly if you need to borrow more money.
There is no guarantee that the lender whose fixed rate you have locked into will agree to offer you additional funds at a later date, which means you could end up stuck where you are.
And even if they do allow you to borrow extra money, it will be at a different and possibly much less competitive rate than your existing mortgage.
If you need to leave your deal early then early redemption penalties on long term fixed rates are usually expensive, so you may lose thousands if you want out sooner than expected.
However, despite the drawbacks, if you are certain that you are going to remain in your existing property for the full term of the fixed rate, then some of the longer term fixed rate mortgages currently available look extremely tempting.
For those who don’t know what the future holds, or whether they 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.