Yorkshire Building Society has followed the lead of Virgin Money and created a mortgage with a fixed-term interest rate of 15 years.
The new mortgage, which comes with a rate starting at 2.89%, was launched in response to ‘customer demand’ for long term fixes, according to Yorkshire. It said the deal offered borrowers longer term security.
Its launch comes a month after Virgin Money unveiled a 15-year mortgage offering ‘competitive rates’ and availability for those borrowers who only had a small amount of their own money – 5% – to bring to the purchase.
Andrew Asaam, the director of mortgages at Virgin, described the deals as a ‘perfect choice for borrowers who were looking for longer interest rate certainty’.
But, for anyone considering taking a mortgage for a decade-and-a-half which deal is better? And what should you look out for before proceeding with such a long-term borrowing commitment?
Interest rates
Mike Scott, a property industry expert at estate agent, Yopa, said interest rates were the first consideration. For a customer with a 35% deposit the interest rate on offer from Yorkshire Building Society was higher at 2.79% compared to Virgin Money’s 2.55%.
But he also urged customers to look at the fees too.
“Yorkshire Building Society will charge buyers only £495 instead of Virgin’s £995,” he added, pointing out Virgin also had an option with no fee but an interest rate of 2.89%.
“However, the Yorkshire Building Society offers an option where buyers can only put down a 10% deposit with a higher interest rate at 3.65%. In comparison, Virgin offer rates at 3.45%, but again this comes with the cost of a higher fee.”
Security
As promoted by Virgin Money and Yorkshire Building Society, the main ‘pros’ of these 15-year deals are the security. Indeed, Scott said both mortgages were well worth a look if you were planning to stay put for a long time.
He explained customers would pay more in the short-term than for a shorter fixed rate, which can charge as little as 1.5% annual interest for a two-year period with a large deposit. However, these deals leave you vulnerable to interest rate rises at the end of the deal when it time to remortgage.
“These deals,” he said, “give you the peace of mind that comes from knowing that your mortgage repayments won’t change for fifteen years, whatever happens to market interest rates.”
Early repayment charges
The pitfalls to these deals come if you change your plans and need to exit the mortgage – because early repayment charges apply.
Scott said: If you think this might be a risk, it could be worth looking at Yorkshire Building Society rather than Virgin Money, as their early repayment charges are significantly lower.
“Virgin’s charge starts at 8% of the amount borrowed for the first five years, then 7% for the next five years, and then falls off over the final five years.
“By contrast, Yorkshire’s charge starts at 6% for the first five years, then 5% for the next four years, falling further over the final six years.”
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