With inflation soaring and the markets pricing in not just one, but possibly two or three interest rate rises over the coming year, a fixed-rate mortgage is extremely appealing. Most borrowers taking out mortgages are opting for fixed rates, with two- and five-year deals proving particularly popular, especially as they are so competitively priced.
However, this week, Kensington Mortgages went a step further, launching a fixed-rate mortgage of up to 40 years. The ‘Flexi Fixed for Term’ mortgage allows borrowers to fix the rate on their mortgage from 11 to 40 years; rates depend on the length of fix chosen and amount borrowed. The maximum loan-to-value (LTV) is 95 per cent for new purchases or 85 per cent for remortgages. Rates start at 3.34 per cent for a 40-year fix at 60 per cent LTV.
Fixed Rate Mortgages
While a fixed-rate mortgage gives welcome certainty and helps with budgeting each month, borrowers should watch out for the early repayment charges (ERCs). These are payable should you exit the mortgage before the end of the fixed-rate period and can be onerous. In Kensington’s case, ERCs are payable within the first 15 years of the loan if the borrower remortgages away to another lender; these are charged at 7 per cent of the outstanding loan. For example, someone with £500,000 outstanding would pay a considerable penalty of £35,000 to get out of the mortgage early. There are no ERCs if the borrower sells their home or becomes critically ill.
Most borrowers tend to fix for two or five years because they feel more certain about what they are doing within that shorter timeframe. The 40-year fix is likely to appeal to a relatively small number of borrowers because you are committing for such a long period and much can change during that time.
Those looking for a new mortgage or interested in refinancing should seek advice from a whole-of-market broker such as AWS Private Finance. We compare all the deals on the market so if a longer-term fix is in your interests. We can point you in the right direction. Please get in touch for more information.