Money Insider: The 10-year fixed rate mortgage returns, but is it a fix too far?

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The Independent Online

The market for long-term fixed-rate mortgages is almost unrecognisable compared with that seen at the height of the property market three years ago.

The latest offering from Yorkshire Building Society is one of only a handful of fixed-rate products with a term of 10 years currently available, whereas in June 2007 there were more than 85 fixed-rate mortgages with terms of between 10 and 30 years.

Shorter term fixed rates have always been the more popular choice among consumers. However, with the new coalition Government warning that the next few years are going to be painful, maybe the certainty of payment amount and peace of mind offered by a longer term fixed-rate will have greater appeal. The level of uncertainty surrounding the UK economy is greater than for a long time with inflation running higher than forecast and experts split as to when interest rates may rise.

As well as the general nervousness surrounding the UK economy, there is also the potential issue of a £300bn mortgage funding gap to take into account.

The gap has been plugged temporarily with government funds via the special liquidity scheme and the credit guarantee scheme. However, both of these schemes will have expired by 2014 with a danger that lenders will be unable to refinance this sum in such a short time scale.

As a result we could face a potentially severe under-supply of credit in the UK with the possibility that mortgages may have to be rationed.

The 4.99 per cent offer from Yorkshire BS is an attractive looking rate and is currently a best buy, with fewer than 40 per cent of mortgage lenders now charging a SVR lower than this.

Apart from ease of budgeting, one of the main plus points of a 10-year fixed rate are that you only have one lending fee to pay out compared with five separate fees if you opt for a "switch every 2 years" strategy.

It's not just the lending fee you need to consider, there's potentially redemption fees, valuation and legal fees too – not to mention the hassle factor. Most of these long-term fixed-rate products are portable, so you can take them with you when you move house, and there is also an element of flexibility with overpayments (typically 10 per cent of capital) permitted.

The downsides are obviously that shorter term fixes and trackers are quite a bit cheaper, but with many trackers operating on margins of 2-3 per cent above base rate, it won't take too many rate rises for the 4.99 per cent figure to be breached.

So while 10 years may still seem a fix too far for many people, with a competitive sub five per cent rate and all the uncertainty surrounding future mortgage funding and the wider UK economy, it will be interesting to see the level of uptake for this product and whether other providers will re-enter the long-term mortgage market.

More homes on the market since Hips scrapped

The Government's decision to abolish home information packs has seen more people putting their homes on the market, according to latest figures from the property website Rightmove.

Whether it is a case of homeowners testing the water, rather than seriously looking to sell, is not yet clear, but for those looking to move or buy their first home, there's no shortage of good mortgage deals.

Although potential first-time buyers can often afford the monthly repayments on a new mortgage, it has been the struggle to save a 15 per cent or 20 per cent deposit that has prevented many from purchasing their first home.

Woolwich has recognised this and has launched a 90 per cent LTV mortgage for people purchasing a new property from Bovis Homes. The product is priced at a very competitive 4.99 per cent fixed for two years with a £999 fee and is just the sort of initiative that is needed to help stimulate the new-build market. The mortgage package – being marketed as 'The Perfect 10' – is aimed at homemovers with limited equity and could particularly benefit first-time buyers who do not have to pay stamp duty on purchases up to £250,000.

Elsewhere, First Direct has reduced the rate on its 65 per cent LTV Repayment Life Tracker mortgage to 1.79 per cent above base rate, making it 2.39 per cent with a £99 fee.



Andrew Hagger is a money analyst at Moneynet.co.uk

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