For borrowers looking to lock into a rate for the longest possible time, the 10-year fixed rate was once a popular option, but product numbers are dwindling.
Buying a property is generally seen as a long-term venture, whether it’s a home to live in or an investment to ensure a monthly income and a retirement pot at the end of it. For many, locking into a 10-year fixed rate deal is a way of guaranteeing the same monthly payments for an extended length of time.
It has always been a somewhat niche option not offered by all lenders, but the latest research from Moneyfactscompare has revealed that a growing number of lenders are pulling out of the sector – meaning borrowers may have to search harder to find the best deal.
These include Leeds Building Society, The Co-operative Bank and Platform, which have all removed their 10-year offerings over the past few days.
Rates have also increased by around 2% compared with a year ago, although similar rises have been seen across the board since the end of last year. Borrowers facing higher rates as well as less choice might be more inclined to look at shorter term products at the moment.
The rise of the 10-year mortgage
After the credit crunch, 10-year mortgage products became extremely scarce. Borrowers tended to opt for two-year and five-year products, which meant hedging against any substantial interest rate rises.
For several years now, though, lenders have come back into the fold to offer these products. Generally, borrowers would need a larger deposit than usual to secure a good 10-year deal – as much as 50% – although deposit requirements have become less stringent in recent years.
For borrowers who like certainty, are confident that their financial situations are unlikely to change, and plan to own the property for a very long time, they can be a great option. And if you’d entered into a 10-year fixed rate, say, a year ago, you might be very pleased with your decision right now.
The downside is that you can’t exit easily, and you generally can’t transfer the product onto another property, so if your circumstances change, you might be locked in or need to pay an early repayment fee.
Borrowers seeing products fall
If you want to know whether now is a good time to lock into a 10-year fixed rate or not, your best bet would be to speak to a mortgage advisor. However, it is impossible to predict how interest rates will fare over the coming months and years.
Right now, though, according to Moneyfactscompare, product numbers are falling. Its analysis found that there are now 159 10-year fixed rate deals on the market (as of 23rd May), compared with 169 on 16th May, and 168 in April. This is up on last May’s figure of 129 products, but could be a sign that more lenders will dip out.
Rates on the product have gone up on average, too, while shorter terms have generally been decreasing. Moneyfacts found that the average rate is now 5.06% for a 10-year deal, up from 5.01% on 16th May and 4.99% in April. In May 2021, the average rate was 2.97%.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Borrowers looking to secure a decade-long fixed mortgage may be disappointed to see a drop in product choice. When lenders withdraw from such a niche sector, it can be in reaction to interest rate volatility, or even down to demand.
“However, this move may influence other lenders to follow suit and reconsider their own propositions. Those borrowers who want peace of mind with their mortgage repayments may well be comparing both five-year fixed mortgages and even 10-year fixed deals amid interest rate uncertainty, but these average interest rates are around 2% higher than they were a year ago.
“A decade-long fixed mortgage is a commitment, and consumers must be confident with the length of the term before they apply, as an early repayment charge would apply should they exit their mortgage early.”