Falling rates on long-term fixed rate products mean borrowers could cut over £3,500 off their mortgage, new research shows.
According mortgage broker Private Finance, the cost of a 10-year fixed rate mortgages has fallen by £3,595 for the average borrower over the last year as a result of average rates plummeting from 3.36% to 2.98%.
The saving is equivalent to five months of mortgage repayments at the old rate or over nine months interest-free.
Downward pressure on mortgage rates means that long-term fixed rate deals now cost less than two and three-year fixed mortgages did in 2011.
The difference between a typical 10-year fixed rate deal and standard variable rate is now £105 a month.
Fixed rate mortgages offer financial security to mortgage borrowers and can shield them from economic uncertainty.
Shaun Church, director at Private Finance, said: “The option of fixing your interest rate for a decade has very much sat at the fringes of the UK mortgage market, but today’s ultra-low interest rate environment means 10-year fixes are now less than short-term fixes were just a few years ago. With loan terms getting longer and people moving house less often, it seems counter-intuitive that fixing the price of their loan for a much shorter period of time remains the default option for many consumers.
“In the right circumstances, fixing for longer can have several major advantages. For one, borrowers are insulated from the rate rises that they might otherwise be exposed to when their short term deals end. For many, the additional cost of a long-term deal is a small price to pay for extra peace of mind, particularly when rates are at historic lows and there is a growing sense of uncertainty about the long-term outlook for household finances and the economy.”
Mortgage rates have steadily fallen in recent years and are currently at record lows after the Bank of England slashed interest rates in August from 0.50% to 0.25% – the first interest rate cut since 2009 when the financial crisis was at its peak.
However, the tide may be about to turn, with average fixed rate mortgages edging back up.
The cost of a 10-year fix is starting to rise after years of falling rates, according to research from financial website Moneyfacts.co.uk.
The average rate rose slightly from a record low of 3.11% in November 2016 to 3.20% in January.
Moneyfacts said this increase may be an indication of what is in store for long-term fixed rates in 2017.
