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It has never been cheaper to fix a mortgage for ten years

James Burton For Money Mail

It has never been cheaper to fix a mortgage for ten years – but should you do it?

Yesterday Leeds BS launched the cheapest ever ten-year deal at 2.75 per cent for those with a 35 per cent deposit. Monthly repayments on a typical £150,000 loan would be £692. The fee is £1,499 and the total cost over ten years, £84,539.

TSB and First Direct cut their ten-year fixed rates for borrowers with a 40 per cent deposit to 2.89 per cent a few weeks ago.

Ten-year fixed mortgage: If you move home within the period it could turn into an expensive commitment

Ten-year fixed mortgage: If you move home within the period it could turn into an expensive commitment

A ten-year fix gives you security, as you know how much you will pay for a decade. 

But if you move home within the period it could turn into an expensive commitment.

Early repayment charges can prove costly and while most deals are portable and so should be able to move home with you, there is no guarantee a lender will approve the new property or lend you more. 

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David Hollingworth of mortgage broker London & Country explains: ‘If you were moving and wanted to borrow more than they were prepared to loan, the penalty for switching early would be pricey.’

With the Leeds, you can pay off an extra 10 per cent of what you owe annually without incurring an early repayment charge. 

But if you want to pay more, you will be charged 6 per cent for the first two years, falling to 2 per cent. 

It is estimated thatonly about 2 per cent of mortgages taken out are for ten-year fixed-rate deals at the moment.

However, as interest rate rises have been pushed further back and bank funding costs have sunk, the number of ten-year mortgage deals available has soared.

In 2012, there were only 17 available to buyers, at a typical rate of 4.78 per cent.

Figures from just before the end of 2015 showed there 108 available.

Borrowers in the UK have been reluctant to fix for ten years, as they worry about flexibility. Five-year fixes have gained substantially in popularity, however, although the two-year fix remains British homeowners’ favourite mortgage.

The chart shows the outlook for interest rates at the time of the Bank of England's February inflation report

The chart shows the outlook for interest rates at the time of the Bank of England’s February inflation report

 

 

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