How does the idea of taking out a mortgage with an interest rate which would be fixed for the entire lifetime of the loan sound?
This is the deal online mortgage broker Habito is launching next week – a long-term fixed rate mortgage which offers borrowers a guaranteed rate for up to 40 years.
The idea is that instead of having to switch deals at the end of the mortgage’s two or five-year period, borrowers can avoid the fees and hassle associated with remortgaging by fixing in for the long haul.
But, if customers who have signed up to the mortgage decide they want to move house or spot a better deal for which they are eligible, they have the flexibility to move as Habito One has no early repayment charges or exit fees.
Likewise, if customers want to move house – they can take this mortgage with them, in a process known as porting.
Martijn van der Heijden, Habito’s chief financial officer, told What Mortgage, Habito One was likely to appeal to first-time buyers who were searching for certainty despite potential job changes and house moves. Indeed, the mortgage can also be ported.
But he also expected people who had found their ‘forever home’ to be a big market for the new deal.
Customers will be able to apply for the mortgage via Habito, using an online process where they can also speak to an adviser if necessary.
This process would be ‘advised’ therefore only those for whom the product was deemed suitable would be recommended to apply. Where another product was better, the customers would be advised to opt that instead.
US model
But while these products are a new concept in the UK, the model is common place in countries such as US, Denmark and France.
What’s more, Habito said when asked, around a third (30%) of UK mortgage-holders said they would be interested in switching to a long-term fixed rate mortgage, citing flexibility, certainty and protection against interest rate rises as their key reasons.
Daniel Hegarty, founder and CEO of Habito, said the mortgages we had available to us today were remnants of a different age and a different power dynamic between customers and lenders.
“The future has never been less predictable and we need our homes to provide us with safety and financial security,” he said.
“The vast majority of us on a mortgage that’s fixed for two to five years are effectively trapped in a system that doesn’t fit our financial future or our home-buying habits.
“Worse still it demands that we continually switch to a new product before we get stung by a higher rate. This cycle is costly, time consuming and repetitive – roughly £1,000 each time up to 10 times over the length of the mortgage.
“And while Habito provides free mortgage advice, some brokers still charge around £500 to advise on a remortgage, and that adds up over the lifetime of a mortgage.”
How much does it cost?
Habito One mortgage rates start at 2.99% and are fixed for the full contractual term of the mortgage. This, however, is for a borrower who needs a mortgage term of 10 to 15 years and who has 40% of the property’s value in equity or as a deposit.
For those who need a loan of up to 90% and who would like to take advantage of the longest term of 40 years, the rate is 5.35%.
While customers can borrow up to 90% using Habito One at the moment, there are plans to roll out 95% mortgages from early summer.
What’s the verdict?
There are already some other options on the market for those who are keen to fix for the longer term.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said LiveMore Capital offers 20-year fixed mortgages buy they are for specific customer types.
Otherwise the longest are 15-year mortgages from Virgin Money – a term which is quite niche.
Springall added: “These new mortgages from Habito are designed the demand from borrowers who wish to lock into rate for the longer term and perhaps do not want to move their mortgage too often.
“Further good news is that they plan to roll out 95% loan-to-value mortgages in the summer, an area of the market that needs a significant boost.
“There are over 100 decade-long mortgages out on the market already and they can provide a solution for borrowers who need peace of mind when it comes to their mortgage payments, but it’s always good to see more options brought onto the market.
“Most of the present deals out there tie in customers with early repayment charges for the duration of the deal, but there are some from TSB which will permit borrowers to exit after the first five years.
“It’s always wise for borrowers to review their mortgage as they could find a better rate elsewhere and depending on the deal, upfront costs to switch may not be too much to pay out on if the interest rate on the new mortgage is more competitive.”
At the moment the average 10-year fixed mortgage rate is 2.84% and the lowest 10-year fixed deal comes from Barclays at 1.99% at 60% loan-to-value with a £999 fee.
Springall added: “It will be interesting to see the uptake for these new mortgages and whether alternative lenders will launch longer-term mortgages in the current market to meet demand.”
