Mortgages: Would you freeze your mortgage for TEN years? 

In fact, latest data from Mortgage Advice Bureau suggests that 97 per cent of customers borrowing to fund a property purchase in February took out a fixed rate deal of some sort or another, whilst 95 per cent of those remortgaging also opted for a fixed rate. 

It’s easy to understand why. 

The end of the low interest rate environment could come as a shock to millions of homeowners, many of whom have only had a mortgage whilst the interest rate has been 0.5 per cent.

Research out this week from HSBC suggests that in the UK, one in six (16 per cent) of homeowners say that a two percentage point increase in the interest rate of their home loan would cause them to struggle or not be able to afford their mortgage repayments. 

The data also suggests that 35 per cent of households would be under financial strain should the interest rate rise to 5.5 per cent. 

Many industry experts suggest that we could see an interest rate rise as early as May, with perhaps another one or even two further rate increases before the end of 2018 as the Bank of England aims to bring inflation under control by reducing consumer access to cheap borrowing. 

There is another factor involved on the supply side, as lenders are seeing their access to cheap ‘wholesale’ funding reducing, which also creates an upwards pressure on mortgage rates for consumers. 

Casting our minds back to before the credit crunch, between 1997 and 2007 the average Bank of England Base rate was 5.4 per cent.  

Which means that, if we were to see a return to rates of what were previously considered normal, over a third of the UK would struggle.

This of course explains why fixed rate mortgages have become the natural choice for borrowers, as they provide a way to secure probably the single biggest point of household outlay for a pre-determined period. 

So, the case for a fixed rate mortgage, for many consumers at least, is very easy to make.

But how long could you fix your mortgage for?  

In a time of super-cheap mortgage rates, two and three and even five year deals fixed at below two per cent have become commonplace.  

But what a lot of would-be borrowers don’t know is that it’s possible to secure your mortgage rate until 2028, and sometimes for less than 2.5 per cent.  

Over the last two years, there’s been an emergence of competitively priced ten year fixed rate mortgage products. 

Playing on our fears about an end to cheap borrowing, together with concerns around what a post-Brexit economy might do to interest rates, mainstream banks such as TSB and Barclays, together with building societies such as the Coventry and the Nationwide have all launched decade-long fixed rates, which have proven popular with those who are keen to secure a cheap rate for a long as possible.  

HSBC launched its ten year fixed rate mortgage in July 2016. 

Greg Went, HSBC UK’s Head of Mortgages commented: “Ten years might seem like a lifetime away, yet our research shows that we like to plan ahead and financial peace of mind is important to us.  

“Fixing a mortgage rate for the long term offers customers certainty that their mortgage repayments will not increase over that period, and can give homeowners the assurance that their mortgage rate won’t change regardless of what else might happen with the wider economy or the Bank of England Base Rate.” 

So, which customers might benefit most from fixing their mortgage until 2028? Gregg answered: “Ten year fixed rate mortgages are most popular with those remortgaging, and we would typically expect to see people normally half way through their mortgage at the 60 per cent Loan To Value tier, so they lock in for ten years. 

“For example, someone with approximately ten years left on their term might look to take a ten year fixed rate at 2.49 per cent with no fee and finish their mortgage with total payment security.” 

Another lender offering decade-long fixed rate deals is the Coventry Building Society, who have a range of rates that go up to a 90% Loan to Value, one of the few lenders to provide this option.   

David Morris, Head of Mortgages and Savings commented: “We’ve offered this type of mortgage since April 2016, when the uncertain economic climate in the run up to the EU referendum meant that more borrowers were looking to fix for longer than the usual period of two or five years. 

“The expectations of further Bank of England base rate rises after recent MPC meetings have meant that we’ve seen longer-term fixed rates become even more popular. 

These types of mortgages could be well suited to a range of borrowers looking to take advantage of the current low rate environment and secure long-term certainty, especially those who are coming towards the end of their mortgage term.”

But before you sign on the dotted line there are several things to contemplate before you commit to such a long-term fixed rate mortgage.  

Firstly, consider what you’ll need to pay to get the product. 

Some lenders do charge hefty arrangement fees, so it’s worth checking to see what you may be charged and how much you need to find up front for your ten year deal, or if you can add any fees to the mortgage. 

Brian Murphy, Head of Lending at Mortgage Advice Bureau advised: “Whilst ten year fixed rate deals can be the perfect product for those who are settled for the long term, it’s important to be aware of any Early Repayment Charges (ERCs) that you may have to pay if you decide to pay off your mortgage early or need to sell your property during the period of the loan.  

“These vary between lenders so you do need to read the small print, and can make a ten year fix a less flexible option.  

“That said, you may be able to take your mortgage with you if you move home – also known as ‘porting’ your mortgage – however some lenders do charge fees for this as well, whereas others impose strict criteria which means it’s not always possible to do so.  

“These constraints can mean that ten year fixed rate deals aren’t for everyone, but for some people, they can provide an excellent basis for long term financial planning, particularly if you can combine a sub 2.5 per cent ten year fix alongside an overpayment strategy to clear your mortgage completely within that time.” 

Whilst they may not be right for everyone, for some people a decade of certainty around their mortgage payments can provide both the basis for a long-term financial planning strategy, but also enduring peace of mind. 

Follow Louisa on Twitter: @louisafletcher