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Should you fix your mortgage for 10 years?

New homebuyers with small deposits can now fix their loans for a decade. But is this long-term security worth the extra costs and restrictions?

House held in human hands

Aspiring homeowners looking to get onto the property ladder can now opt to fix their mortgage for as long as 10 years even if they don’t have a big deposit.

This is through Leeds Building Society under the government’s Help to Buy scheme, which enables borrowers to buy with a deposit of just 5%.

Limited options

But it is only possible to fix for this length of time if you purchase a new-build home through Barratt Developments.

Leeds has launched two 10-year deals, one of which comes with a rate of 4.99% and a £499 fee.

With the other deal, there are options to pay 0% for three months and then a rate of 5.16%, or 0% for six months and then 5.34%.

But while such offerings may sound appealing, does fixing for as long as a decade really make sense for any borrower – let alone a first-time buyer?

How does the new deal stack up?

Mortgage experts have welcomed the launch, but question how popular it will be.

"The first 10-year fixed-rate Help to Buy mortgage demonstrates some welcome product innovation," says Brian Murphy from the Mortgage Advice Bureau.

"But it is likely to have limited appeal. While some will undoubtedly appreciate the peace of mind associated with a longer-term fix, we don’t see a high demand for deals beyond five years."

Longer fixes cost more

Fixing for a longer period can also mean a higher interest rate.

"This could pose a problem to first-time buyers with less disposable income to cope with higher monthly repayments," warns Murphy.

"With affordability being tested in ever-increasing ways following the Mortgage Market Review, alternative two or five-year fixed-rate Help to Buy products are likely to be more affordable."

Santander, for example, has a five-year fix at 3.39%.

Buyers are restricted

Mark Harris from broker SPF Private Clients adds that not only is there a premium on the 10-year fix from Leeds, but also points out that buyers are restricted to buying a new home through Barratt Developments.

"If you’re looking for a lower rate 10-year fix, Yorkshire Building Society has a product at 4.14%, but you do need a deposit of 25%," he says.

Elsewhere, Newcastle Building Society has just launched a 10-year fix at 4.49% for those with a deposit of at least 20%.

Pros and cons of fixing for 10 years

A 10-year fix does offer borrowers security, especially at a time when there are fears that rates could rise significantly.

"While 10 years used to seem like a long time, many buyers are now not planning on moving home for much longer than that," says Katie Myers from Keppie Massie estate agents.

"There’s very much a desire for stability with houses, jobs and mortgages."

On the downside, 10-year fixes often come with large early-repayment fees.

Early-repayment penalties

"Borrowers generally don’t feel comfortable committing for such a long time," says Harris.

"The big issue is that if you want to get out during the fixed period, there is usually a hefty penalty for doing so."

Murphy adds that a buyer’s circumstances can change significantly within a decade.

"Early-repayment penalties may mean that many baulk at committing for this length of time," he says.

A five-year fix may be a better option

On balance, as a borrower, you may feel happier fixing your mortgage for five years, rather than 10.

"During five years, interest rates could well start rising, so you will be protected," says Harris.

"But while a five-year deal offers some security in the medium-term, you aren’t tied in for such a long period of time."

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Esther Shaw

Esther Shaw

Esther Shaw is a regular contributor to Confused.com and is the former deputy money editor at The Independent and Independent on Sunday. Before that, she worked as a money and City reporter on The Daily Express and Sunday Express.
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