The Bank of England has said it would support a review into long-term fixed-rate mortgages after the government announced that it was exploring plans to introduce a 50-year fixed-rate deal that could be handed down from parents to children.
While UK borrowers traditionally prefer to opt for more flexible, shorter fixes. With four-in-five on fixed rates and half of all mortgages fixed for two to five years, some lenders offer 25-year fixes. While there are also a couple of 40-year options available. In other countries, such as Japan, it is possible to take out a fixed mortgage for as long as 100 years.
Of course, while longer fixed-rate mortgages may be more affordable as monthly payments are lower, in the long run you end up paying much more in way of interest so critics argue that they are not viable. It will also be difficult for lenders to assess affordability if parents plan to pass on this debt to their children. There are also concerns that they will push up house prices further still, exacerbating the problem.
Another concern are the early repayment charges which borrowers must pay to get out of the mortgage early. Most people prefer not to commit to longer-term fixes because they are aware that circumstances can change and it is hard to predict what you will be doing in many years to come.
That said, it may be worth considering a shorter fixed-rate mortgage if you are concerned about rising interest rates. The Bank of England forecasts that UK mortgage borrowers will avoid debt distress unless interest rates rise to 5 per cent or higher. But with markets expecting UK rates to peak at around 3 per cent. Borrowers may prefer locking into a fixed-rate now to protect themselves.
How AWS Private Finance can help
If you are worried about interest rates rising and what it will mean for your mortgage. It is worth exploring your options in advance of your current deal coming to an end. It is usually possible to reserve a mortgage up to six months before you need it. A whole-of-market broker such as AWS Private Finance can help find the right deal for your circumstances, assisting you secure a fixed-rate mortgage before rates rise further. Get in touch for more information.