Longer term fixes - The Times

Over the past few years there has been a marked increase in the number of people taking 5-year fixed rate deals; some of this driven by the low rates we're seeing, some of it by the fact lenders will often agree larger mortgages if you opt for a 5-year fixed rate deal, as well as some taking the choice away (a lot of 95% LTV deals were only available on 5-year fixed rates for example). Longer term fixed rates have struggled, even with rates as low as they are. Lack of competition means rates are often seen as high compared to a 5-year fixed rate, but more than that clients are hesitant to commit to such a long contract and tie themselves to that deal and that lender for a decade.

Five-year fixed rates have been incredibly popular recently as borrowers look for payment security to bypass some of the economic uncertainty. Many of our clients have taken five-year fixes below 1% and on interest-only minimising their repayments. We do not arrange a huge amount of seven and ten-year fixes even though the rates are historically super-cheap.

"We've seen a big increase in longer term fixed rates being taken up as people look to take advantage of the low rates before they inevitably rise. 5-year fixed rates tend to be the most popular option as many don't feel comfortable being tied in for longer than that. Personally, I feel that longer term fixes are undersold and could be suitable for many borrowers, especially given that there are some 10-year fixed rates with 5-year early repayment charges, which give ultimate security and flexibility."

"For the first time in many years, clients are getting in touch to ask about paying the Early Repayment Charges on their existing mortgage, to put in place a longer fixed rate with another lender. They are concerned that rates have hit an all-time low and are now going to start rising again. They would rather pay a penalty now than a higher rate when their current deal ends in a year or two."

Throughout the last 18 months, there's been a marked increase in the number of 5-year and longer fixed-rate mortgage deals put in place, driven by consumers' heightened aversion to risk, coupled with historically low mortgages rates. Longer fixed-rate deals have come off the back of both concerns, partly about Brexit but ultimately our shared experience of COVID, which has hammered home for many, the fragility of our financial and societal ecosystems. As a result, people no longer take the old norms for granted, which, to my mind, is a good thing, and are instead opting for security and stability wherever in their lives it can be found . However, with regards to longer than 5-year deals, they're still the least taken mortgage products for a variety of reasons, not least; who can predict ten months into the future, let alone ten years, along with the very hefty redemption penalties of exiting those deals if circumstances necessitate it.

Historically low interest rates was only ever a short term treat, and as the mortgage rate war finally draws to an end, and with increasing predictions of a rate hike pre Christmas, the savvy mortgage holder will fix in for five years or longer now whilst rates remain ridiculously low. Whilst the jury is still out on whether seven and ten year deals represent value for money, and only time will tell, the ultimate long term security and peace of mind has become hugely attractive for some after the events of the past 18 months, with many prepared to pay a premium for this security. However, extremely high early repayment charges for a 7 - 10 year long deal, coupled with the premium interest rate compared to a five year deal, is still enough to put many people off, with five year fixed rates certainly the most sought after product and for many the right thing to do.

I have yet to come across anyone who has fixed their mortgage for longer than the usual 2,3 or 5 year period that did not regret it after as they either decide to take money out of the equity in the property to carry out work to improve their homes or due to changes in their circumstances, they have to move and now face the crazy penalties which can run into the thousands of pounds. The products which are longer than 5 years tend to carry a premium and do tend to put off borrowers, even those who have no intention of moving and have no appeal for the majority of first-time buyers or young couples buying their first property together until they get the lay of the land.

In the last month we have seen a 50% increase in clients fixing for 5 years. There is also growing demand for 10 year fixed rates where the most competitive deal is 1.94% with a £995 arrangement fee.