Daily Telegraph article on 30 year fixes

ended 21. November 2021

A journalist at the Daily Telegraph is writing an article today about Kensington Mortgages launching 25 and 30-year fixed rate mortgages. She is after a few quick comments about why these types of offers might be coming to market now and whether it is unusual. Is this the first? The rate will be less than 3pc, so how does that compare to others? Is this actually a good deal for people when shorter terms are so much lower? Will other lenders follow suit? Any other observations, jot them down!

4 responses from the Newspage community

Super-long fixed rates aren't new phenomena and have been around on the other side of the Atlantic for decades. However, these types of deals are coming to market from lenders such as Kensington due to the differences in the way they are funded. High street banks and building societies fund their mortgages from customer deposits in the main. Therefore, they need to maintain enough liquidity for customers to make withdrawals, leading to the current lengths of standard fixed rates being either 2 or 5 years long. On the flip side of that, we have lenders such as Kensington who lend money on behalf of other people, as they aren't a 'bank' in that they don't accept customer deposits. The funders are usually investors who have large amounts of capital they want to put to work, or what are known as institutional investors such as large insurance companies who may not need access to that capital any time soon. It's likely this is the mechanism through which they are funding these types of super-long fixed rates. Are they a good idea? Probably not because life happens, people move home, relationships fail, children are born etc and we can never predict what is around the corner. It's a good gimmick; however, I suspect anyone buying one of these deals will act in haste and repent at leisure.
Borrows need to keep in mind any tie ins that come with such products. It's uncommon for somebody to stay in the same home for 25-30 years these days and anyone considering this type of product needs to understand the implications if their circumstances change. A first time buyer should think twice about such a product. As with any financial product there will be a few people this this suits perfectly though. Just keep in mind they might be paying 3 times as much interest as they could have done even on a 5 year fix deal today. This could wipe out any savings made in the future when rates might be higher but they could be paying it on a much much lower balance having cleared more capital and payed less interest in the early years. I've seen the pickle people have got themselves into by fixing for 5-10 years, let along 30.
Long-term fixed rates are nothing new, but products released to date have underwhelmed as they only suited only a very a limited number of borrowers. This is primarily because of the lack of flexibility should the borrower's circumstances change during the fixed rate period; any changes often incurring a big fee. Kensington have indicated their new product will offer flexibility for borrowers looking to move or sell their home, and this could be a winning ticket for them, making it a viable option to a wider audience.
If you have lived in France, Germany or the US, you will be used to seeing fixed rates up to 25 or 30 years. But this will be new to UK borrowers. With the base rate looking like it could increase imminently, long term fixed rates are very appealing. 7 - 10 year fixed rates however have been around for a few years and they are still unpopular as the majority of people don’t want to be tied into a product for this long. Fixing for longer will normally involve paying higher arrangement fees and expensive early repayment charges if you exit the deal early so this will need to be factored in when deciding on which product is most appropriate.