If you like the peace of mind of facing no surprise interest rate hikes, and are confident you aren’t going to move house, then a 15 year fixed rate mortgage could be good option for you to consider.
Traditionally, UK lenders only offered fixed term mortgages of up to 10 years, making longer terms rare mortgage products.
Virgin Money was the first major UK lender to debut its range of products for a 15 year term. Since then, the company transferred to Nationwide, where first time buyers or home movers can apply for loan-to-value (LTV) ratios of up to 95% for shorter terms.
Yorkshire Building Society then followed suit with its own 15 year fixed rate mortgages, but now also focus on shorter terms. They also consider lending to would-be-buyers who are looking at LTVs of up to 95%.
Fixed rate mortgages lock in the interest rate you pay over the duration of the fixed term. As you might expect, with a 15-year fixed rate mortgage that term is 15 years.
The advantage of this is that no matter what happens to external interest rates, the rate on your mortgage – and your monthly repayments – will remain the same for those 15 years. This means there’s no need to worry about rate rises and you’ll know exactly how much to set aside for your mortgage repayments for the next 15 years.
This can make 15-year fixed rate mortgages a great choice for those on a budget or those who wouldn’t be able to afford higher monthly repayments.
The downside is that interest rates on long-term fixed rate deals can be higher than on shorter-term or variable deals, and if you need to get out of your deal early, you’ll usually need to pay a hefty early repayment charge.
Perenna is a UK bank that offers fixed rate mortgage plans from 5 to 15 years. They also offer first time buyers a 5% deposit through their Deposit Unlock scheme.
Kensington Mortages is an another specialist mortgage lender that serve the self-employed, contract workers, multiple-income applicants and those who have credit file complexities. They offer fixed term mortgages from 11 to 40 years
While only a handful of lenders offer 15-year fixed rate deals at the moment, the mortgage market is continually changing, meaning there could be more joining in the near future.
Banks usually set their mortgage rates based on movements in the BoE base rate and other economic factors. The base rate is usually voted on by the Monetary Policy Committee (MPC) eight times a year, although the rate won’t necessarily change each time.
Variable rate mortgages, such as trackers, tend to track the base rate closely. This means that if the base rate falls, so will your mortgage rate, but if the base rate rises, your mortgage rate will also increase, along with your monthly repayments.
Fixed rate mortgages, on the other hand, protect borrowers from rising interest rates. You lock in a rate with the lender, and for the duration of that term (in this case, 15 years), your rate remains the same. So even if the base rate rises, there will be no change to your mortgage rate or your monthly repayments.
What’s more, because 15-year fixed rate deals last for over a decade, you won’t need to remortgage as often, potentially saving yourself hundreds of pounds in remortgage costs.
Fixed rate mortgages lock in the interest rate you pay over the duration of the fixed term. The result is that you’ll know exactly what your monthly repayment will be for the entirety of the fixed term, regardless of whether the Bank of England (BoE) changes interest rates or not.
This way you can manage your finances and know how much you’ll have left over to put into savings or use for other purposes like going on holiday.
While a fixed rate mortgage will provide certainty on what your monthly mortgage outgoings will be, do bear in mind that BoE interest rates could go down as well as up during your fixed term, but your payments will always remain the same.
Fixed rate mortgages also tend to be more expensive the longer you tie your fixed in rate for, so you’ll need to weigh this up when deciding what type of mortgage you want to apply for.
Fixed rate mortgages also tend to have fewer extra features, such as options to lower your interest payments by using on offset account. However, this can vary from lender to lender.
If you’re looking for a mortgage that protects you against rate rises for several years, a 15-year fixed rate deal might be worth considering.
However, your options will be limited as 15-year fixed rate mortgages are harder to come by, and interest charges will also be higher compared to shorter-term deals. A 15-year mortgage is also only suitable for those who are confident they won’t need to move home or remortgage during that time as early repayment charges are expensive.
If you’re wondering whether to use a mortgage broker or go directly to a bank, we explore the benefits of a broker.
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