Julia Harris, mortgage analyst at moneyfacts.co.uk, commented: “Since the Treasury’s call for more long-term mortgage deals back in 2003, the market has been very slow to respond, until recently. The last few weeks have seen a flurry of new providers and products enter this market, offering what appear to be very competitive deals.
“Today still less than 20 per cent of providers offer fixed rates greater than ten years, offering 77 products in total. With over 15 times more short-term products available, it is clear that the long-term fixed rate market is still a relatively unpopular choice with the general public.
“Recent research by Mortgages Direct confirms 92 per cent of all mortgages taken out this year have been on a fixed interest rate. But, as short-term fixed rates become increasingly expensive and with fears of a further rate rise due shortly, long-term fixed rate deals may become more appealing.
“With longer term swap rates sitting around 0.70 points below their short term counterparts, the cost to lenders is greatly reduced, but of course the risk is far greater. Today very similar interest rates can be found over two, five, ten and even up to 25-year fixed rate deals.
“But the cost saving for the consumer lies with the fees; with short-term deals you will frequently pay fees, both administration and exit, which are likely to continue to increase.
“From the consumer’s perspective it is good to see that over half of the long-term fixed rates offer fully flexible features, which include the ability to over or under pay, to apply for payment holidays, and to have interest charged either daily or monthly. Cheshire BS products also provide repayment windows, within which you are free to repay lump sums without penalty.
“But fixing your rate over such a long period of time can be considered a gamble. A lot can happen within the economy and within your household over this time. While it is unlikely the economy can sustain lower rates for the longer term, macroeconomic influences, global changes and policy amendments could paint a different picture in the long term.
“Also should you need to redeem the mortgage, in most cases the redemption fees are ongoing throughout the whole of the fixed rate term. The only exception comes from Cheshire BS, whereby for the last four years are penalty free.
“For consumers looking for long term security, with the peace of mind that their mortgage repayments will remain at a level that they know they can afford, having this additional choice of products is welcomed. Undertaking a long term fixed rate mortgage commitment should be considered carefully, making use of independent professional advice to ensure you are fully aware of any product restrictions and fees. However, if long term rates do suit your circumstances, the current deals are very competitive.”
