Skipton Building Society has launched a ten-year fixed rate mortgage charging an interest rate of 4.59% for those looking to borrow at 75% loan-to-value.
The market-leading deal comes with a reasonable £995 to pay in fees, as well as incentives for remortgage customers in the shape of a free valuation and legal fees.
Why it’s a good bet
The fact we can’t predict the future is a big incentive to go for a long-term fix like this one from Skipton.
Locking into a ten-year deal will provide long-term security, protecting you from fluctuations in interest rates that might adversely affect your mortgage repayments later on.
Borrowers have enjoyed a record low base rate of 0.5% for over three years now and at some point they have to rise, although no one knows when. But the fact remains that rates are at historic lows.
Coupled with the effects of the Funding for Lending scheme, borrowers are enjoying super low interest rates at the moment. So why not take advantage for the next decade, especially if your budget has little room to accommodate a rise in monthly mortgage repayments.
Switching savings
Plus taking out a ten-year deal instead of switching between two-year deals means you save on the hassle of remortgaging four times, as well as the associated costs.
Fees average around £1,500 at the moment so a ten-year deal could save you £6,000 on the cost of switching alone.
With the Skipton mortgage you don’t need to worry about whether your loan is the most competitive offer until February 2023.
Downsides
You do pay a premium for that security though.
You can get a much cheaper deal if you fix for a shorter period. For example there's a two-year fixed rate from Yorkshire Building Society that charges a much smaller 2.59% and comes with the same £995 fee.
On a £180,000 mortgage taken out over 25 years the Yorkshire deal would cost £815.69 a month for two years.
The Skipton deal on the same mortgage arrangement would be a whopping £194.03 a month more expensive, costing £1,009.72 in monthly repayments. That amounts to £4,656.72 over two years.
Also although we cannot predict what is going to happen with the base rate some believe it could drop further still, meaning mortgages might get even cheaper! Plus when the rate eventually does rise it is expected to move slowly, giving those that opted to go for short-term cheap deals plenty of time to switch onto another more stable option.
You will need to decide for yourself whether you are happy paying a premium for peace of mind. The mortgage market can be a baffling place so talking to a mortgage broker can help you understand what’s out there to suits your circumstances.
Don’t forget the ERCs
Another problem with a long-term mortgage like Skipton's is the early repayment charge (ERC).
ERCs are usually applied by a lender to the outstanding balance if you want to pay up before the term ends. This might happen if your circumstances change, which over a ten-year period is highly likely!
Within the first three years Skipton will charge you 8% of the outstanding loan - that’s a whopping £12,800 on a £160,000 balance.
The charges fall over the remaining period as your balance gets smaller: 7% in year four, 6% in year five, 5% in year six, 4% in year seven and 3% for the remaining three years.
Locking into a ten-year fixed rate mortgage means you’re banking on nothing significantly changing in your life for a decade.
Ten-year deals
If after weighing up the pros and cons you decide on the long haul there are a range of deals to choose from.
According to financial information website Moneyfacts there are 21 ten-year fixed rate mortgages on the market at the moment, so it shouldn’t take too long to pinpoint a good one for you based on your deposit size and budget.
The cheapest deal I could find was from National Counties on a 50% LTV charging 4.19% with a £1,095 fee. But this deal is only for those that want to remortgage.
The cheapest deal on a 75% LTV comes from Leeds Building Society with a rate of 4.58%. It’s 0.01% cheaper than the Skipton offering, but just misses the mark on being the market leader with its slightly more expensive fee of £999 and lack of freebies for remortgage customers.
Elsewhere if you have a larger deposit Woolwich has a ten year-fix on a 70% LTV for 4.99% with £1,499 worth of fees on top. But for a bigger deposit and larger fee you get access to a worse rate.
This trend continues in the 80-85% LTV bracket. Those with a small 15% deposit saved up can get a Skipton mortgage on an 85% LTV for 4.79% and a £995 fee which also comes with a free valuation and legal fees for remortgage customers. But those with more saved up in a 20% deposit are offered the same rate of 4.79% with Leeds Building Society and a slightly higher £999 fee.
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage
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