Barclays mortgage borrowers are being given the option to lock-in their repayments with an ultra-long seven-year fixed-rate deal – the only one of its kind on the market.
Existing customers can lock themselves in at 2.99 per cent with a £999 fee, or 3.29 per cent with no fee, at 75 per cent loan-to-value, saving more than £5,000 compared with Barclays standard variable rate on a £150,000 mortgage.
If you want to jump ship before the end date on 31 March 2023, you will need to pay an early repayment charge of 3 per cent to move to a new product, but these are the lowest rates around for such as long fix.
While the deal is only open to existing Barclays mortgage customers, it highlights the value in hunting beyond the tradtional two and five-year fixed periods.
Seven-year itch: Borrowers can now get a seven-year fixed rate thanks to Barclays
Mortgage pricing has stayed low during 2015 but constant speculation over interest rate rises has led many homeowners to look to fix their rate.
A long-term fix means you know what you will be paying each month and are protected from rate rises.
While the US has just raised interest rates for the first time in nine years prompting speculation the UK could soon follow suit, there is always a risk with locking into a fixed mortgage deal that rates won’t go up enough – or at all – and you end up paying over the odds while mortgage pricing remains low or falls.
Yet, with both the Bank Rate and mortgage rates at historically low levels, you may consider this a wise time to lock in.
Another risk related to a long fix, such as the new Barclays deal, is that if you need to move house or have a change in circumstances it may be hard to transfer your mortgage. Lenders pay more attention to affordability than ever before and will want to assess your new home – and there can steep early repayment charges.
However, the advantage of taking out a new deal means you’ll have certainty about your repayments and avoid getting stuck on your lender’s standard variable rate.
Usually when borrowers come to the end of a mortgage deal they are moved onto the SVR, which is almost always more expensive.
For example, Barclays applies its SVR at Bank of England base rate plus 3.49 per cent, which means borrowers on the SVR are currently paying 3.99 per cent (base rate is 0.5 per cent).
Monthly repayments on a £150,000 mortgage on the SVR would be £790, or £66,360 in total over seven years.
In comparison, a £150,000 mortgage on the fee-free seven-year 3.29 per cent rate would cost £734 a month a month and £61,656 over seven years – that’s £4,704 cheaper than the SVR.
If you were willing to pay a £999 fee, the rate of 2.99 per cent on offer would cost £710 a month and £60,639 over seven years on a £150,000 home loan. This is £5,721 cheaper than the SVR.
How does it compare to a five-year fixed rate?
The best five-year fixed rate at 75 per cent loan-to-value on the market is 0.86 percentage points cheaper that the Barclays fee-free seven-year rate of 3.99 per cent. It’s 2.43 per cent with a £1,995 fee from Post Office Money.
A 25-year £150,000 mortgage would cost £667 a month and £42,053.96 over five years, including fees which is £2,000 cheaper than the cost of the Barclays deal over five years.
However, in five years’ time you will need to find a new fixed rate mortgage and rates may be higher then.
What about fixing for even longer?
Barclays offers the lowest-rate deal to fix for a decade at 3.25 per cent based on 75 per cent loan to value. A fee of £999 applies.
A 25-year £150,000 mortgage over a decade would cost £730.97 a month – which is a few pounds cheaper than the fee-free seven-year option – and £88,715 over ten years.
Hannah Maundrell, of Money.co.uk, said: ‘With mortgage holders still living in fear of impromptu rate hikes, a seven-year fixed-rate deal could be the lifeline nervous homeowners have been waiting for.
‘Ten-year fixes are definitely worth exploring to though as they give you rate reassurance for longer without being considerably more expensive.’
She added: ‘Anyone that couldn’t afford to pay any more for their home should at least consider locking into a fixed-rate deal, not least because it could save them money now never mind later.
‘Lenders are still battling for the comparison table top-spot, but you need to compare with your eyes open. Beware expensive fees that bump up the cost of a competitive deal – you need to look at the total cost before you commit.’
The Bank of England says it expects to raise rates gently from the current 0.5 per cent level – this chart shows the money markets expectations for how Bank Rate will rise over the next three years
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