Will 10-year fixes leave you nailed down?

Click to follow

Today, a 10-year fix, usually more expensive than the average home loan, will cost you even less: Leeds & Holbeck building society is offering one at 4.65 per cent.

It's not the only low-cost long-term loan. A rash of cheap 10-year fixes are appearing, says financial analyst Moneyfacts, as "swap rates" - the cost to lenders of borrowing from the money markets - drop.

Britannia introduced a 10-year fix last week at 4.74 per cent, matching a recent deal from Yorkshire building society.

It can go either way with long-term fixes: a slew of rate cuts will leave you paying over the odds, while any rate rises will make your decision a financially savvy one. But the appeal is a simple one: knowing you'll pay the same each month regardless of any rate moves by the Bank of England.

The price of this peace of mind to the consumer has usually been a higher mortgage interest rate. But the latest deals have removed this barrier.

There are caveats, though, warns David Hollingworth of mortgage broker London & Country. Bigger redemption penalties, compared to those for shorter fixes, can await if you need to settle the loan early, he says.

You can expect to pay a 3 per cent fee if you redeem your loan early on a two-year fix. By comparison, the Yorkshire building society's 10-year deal levies a 5 per cent fee for redemption within a year; Leeds & Holbeck charges 6 per cent.

"While nobody in their right mind would take out a 10-year deal only to break it within 12 months, changes such as a job move abroad can happen," adds Mr Hollingworth.

At the Britannia, you'll be stung heavily. "Early settlement with the building society's 10-year fix starts at a 13 per cent fine in the first year - a high penalty starting point."

A consumer's ability to overpay might also cause problems.

While the Yorkshire and Leeds & Holbeck let you pay down up to 10 per cent of your outstanding loan each year Britannia has imposed a monthly £499 ceiling - with fees for paying over this.

If a 10-year fix does suit your budget, check that it offers overpayment flexibility and is "portable" to another home if you move.

Looking for credit card or current account deals? Search here