Virgin Money is now offering prospective homeowners the chance to lock into a mortgage rate as low as 2.55% for a whopping 15 years – the longest fixed-rate deal currently available in the UK.
The cheapest deal on offer is a 65% loan-to-value deal either at 2.55% with a £995 fee, or 2.89% with no fee. For those who can’t afford a 35% deposit, Virgin is also offering rates of 3.75% at 90% loan-to-value, for the same term length.
While 15-year mortgages are popular in other countries, two- and five-year fixed rate plans are most common in the UK. That being said, 10-year fixed plans have, and continue to grow in popularity over the last decade.
But is committing to a longer-term fixed rate mortgage a good move?
There is the possibility that you could save money if interest rates rise over the next 15 years, and you’ll benefit from being safe in the knowledge that your monthly payments will stay the same during the whole term.
There are currently some very competitive rates on long-term products, and are not too dissimilar to those currently on offer at a 10-year fix. This means you can benefit from an additional five years’ peace of mind for little additional cost.
While fixed rate mortgages do lack flexibility in some aspect, some long-term deals, including Virgin Money’s 15-year offering, are portable, meaning that you can transfer your loan to another property if you move house, without incurring a charge.
In the same vein, some long-term deals also allow you to overpay your mortgage each month for free if you’re looking to clear the loan quicker – although you’re usually capped at around 10% (again, reflected in Virgin’s 15-year deals).
Locking into a longer-term fix is attractive if you think mortgage rates are likely to rise in the future; and it’s certainly a possibility as Brexit looms ever closer – but at this time, one can only speculate as to the impact this will have.
On the flip side, in times of such economic uncertainty, it’s just as likely that the base rate, and correspondingly mortgage interest rates, could plummet – and if they do, you’re stuck paying a more expensive rate for a decade plus.
What’s more, you can get significantly lower interest rates for short-term fixed rate deals, with the cheapest two-year fix currently offered by HSBC at just 1.34% – but of course, you run the risk of much higher repayments later on if rates soar.
Fixed rate mortgages tend to have steep exit fees during the fixed period. Case in point: Virgin charge as much as 8% in the first five years if you choose to terminate your deal; this then falls to 7%, gradually reducing over time.
Speaking of fees, while many long-term deals allow you to overpay your mortgage, if you want to make an overpayment that exceeds your stated allowance, expect hefty early repayment charges.
While longer-term mortgages can make sense for those in their ‘forever home’, this is unlikely to be a suitable option for everyone – most notably, first time buyers who are more likely to remortgage regularly, or those anticipating a move.
Before committing to a longer-term deal, consider, realistically, where you’re likely to be in 10 or 15 years’ time, and if it’s really suitable for your situation. If uncertain, consider speaking to a mortgage broker for advice tailored to your circumstances.
Virgin Money clearly don’t predict a significant rise in interest rates within the next decade and beyond, which could be a reassuring indication of future mortgage affordability (although bear in mind they’re currently the only lender offering this product…)
But it has got us thinking… does Virgin know something we don’t?!
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