Another long-term fixed deal emerges
Interest rates have risen and are expected to continue to rise, leaving many borrowers to consider longer-term mortgage options that allow them to lock in a lower rate and hedge against future price increases.
Most homeowners and first-time buyers are familiar with offers offering an alternative to the two-year fixed rate that allow you to fix your rate for five or 10 years.
But few know of another option – the seven-year fixed rate. The Newcastle Building Society has become the latest lender to bid on this market and it is – like its five and 10 years cousins – hailed as a way to hedge against rising interest rates.
But how does it differ from other offers and who might it be suitable for?
Mark Wilkinson, national sales manager at Newcastle Building Society, explained that the deal, which has an interest rate of 3.26% and is only offered by brokers, was launched to allow advisers to offer borrowers a “range of solutions”.
“We are fully aware of borrowers’ concerns due to the rising cost of living,” he explained. “In an environment of rising costs and energy bills, our seven-year fixed rate mortgage product gives borrowers peace of mind by providing payment certainty, as well as protection against rising interest rates. ‘interest.”
Newcastle aren’t alone in offering this patch duration. At the time of writing data from financial data analysts Moneyfacts.co.uk showed that Barclays, Yorkshire Building Society and Virgin Money are also currently offering seven-year fixes.
Benefits of fixing your mortgage for a longer term
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Prospective mortgage borrowers looking for peace of mind with their mortgage payments over the next few years could consider a longer-term fixed mortgage, such as a seven one-year fixed contract.
“These types of products could be suitable for those looking to protect themselves from the potential impact of possible future rate hikes.
“Longer-term fixed rate mortgages also provide borrowers with certainty of what their monthly mortgage payment would be and therefore can help them plan and stick to a stable budget for a set period of time.
“Longer-term, fixed-rate mortgages can also allow borrowers to avoid the stress, and even the costs, of re-mortgizing during the term of their agreement.”
Repairing your mortgage for seven years: what to watch out for
Seven-year fixed rates, like other types of mortgages, might not be for everyone, Eleanor warned.
She explained that not all mortgages are transferable – in other words, they might not be able to go with you if you had to move before your contract expired.
In addition, many of these products can carry heavy prepayment charge or penalties if the mortgage is paid off while the borrower is still bound to their original agreement, so it is essential to think about any future plans and the flexibility a borrower might need for their mortgage.
Eleanor also explained that longer term fixed rate mortgages can also be more expensive than short term fixed rate mortgages, and although more lenders have entered this area of the market lately, the fixed rate market of seven years old was still pretty niche.
“This means that the level of choice in longer-term fixed rate mortgage products is not as great as that available to those considering an initial fixed rate term of, say, two or five years,” said she explained.
How do you know if a seven-year contract is right for you?
The Newcastle Building Society deal is only available through brokers, as are most other seven-year patches, except for the Yorkshire Building Society.
Indeed, these lenders aim to provide more options for brokers to offer their clients. As such, the seven-year fix may not be for everyone.
If you are considering a longer term solution, speaking to a broker would definitely be a wise move.
Eleanor said: “Taking all of these factors into account makes the support and advice of a broker or similar invaluable if a borrower is considering one of these products.
“Even if a lender offers a lower rate for a longer term than a short-term deal, whether that’s the best deal for a borrower depends on more than just the initial rate offered.
“It’s important for consumers to speak with an advisor to properly compare their options, think about their plans for the future and consider actual overall cost of the whole package.
Newcastle’s seven-year deal has a rate of 3.26 per cent (3.6 per cent APRC) and comes with a 5 per cent prepayment charge initially, but this decreases each year.
It is available for those who want to borrow up to 80% of a property’s value and Newcastle will allow 10% overpayments per year. It also has £500 cashback and a free standard review.
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