Most homeowners and first-time buyers will be aware of deals offering an alternative to the two-year fixed rate which allow you to set your rate for five or 10 years.
But few may be aware of another option – the seven-year fixed rate. Newcastle Building Society has become the latest lender to make an offering to this market and it is – like its five and 10-year cousins – being hailed as a way to protect against rising interest rates.
But how does it differ from the other deals and who might it be suitable for?
Mark Wilkinson, national sales manager at Newcastle Building Society explained the deal, which has an interest rate of 3.26% and is being offered through brokers only, was launched to enable advisers to offer borrowers a ‘range of solutions’.
“We are acutely aware of concerns borrowers have due to the increasing cost of living,” he explained. “Against a backdrop of rising costs and energy bills, our seven-year fixed rate mortgage product offers borrowers peace of mind by delivering payment certainty, as well as protection against rising interest rates.”
Newcastle isn’t alone in offering this length of fix. At the time of writing data from financial data analysts Moneyfacts.co.uk showed Barclays, Yorkshire Building Society and Virgin Money also currently offer seven-year fixes.
Advantages of fixing your mortgage for the longer term
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Prospective mortgage borrowers who are looking to have peace of mind with their mortgage payments over the next few years might want to consider a longer-term fixed mortgage, such as a seven-year fixed deal.
“These type of products could suit those who are looking to protect themselves from the potential impact of potential future rate rises.
“Longer-term fixed rate mortgages also provide borrowers with certainty as to what their monthly mortgage repayment would be and can therefore help them plan and stick to a stable budget for a set period.
“Longer-term fixed rate mortgages can also enable borrowers to avoid the stress, and indeed the costs, involved in remortgaging for the duration of their deal.”
Fixing your mortgage for seven years: What to watch out for
Seven-year fixed rates, like other types of mortgages, might not suit everyone, Eleanor warned.
She explained not all mortgages were portable – in other words, they may not be able to go with you were you to move home before your deal expired.
What’s more, many of these products can carry hefty early repayment charges or penalties if the mortgage is paid off while the borrower is still tied into their initial deal, so thinking about any future plans and what flexibility a borrower might need from their mortgage is vital.
Eleanor also explained longer-term fixed rate mortgages can also be more expensive than shorter-term fixed rates, and although more lenders have entered this area of the market of late, the seven-year fixed-rate market was still fairly niche.
“This means that the level of choice of longer-term fixed rate mortgage products is not as great as that which is available for those considering a two- or five-year initial fixed rate term for example,” she explained.
How do you know if a seven-year deal is right for you?
Newcastle Building Society’s deal is available only through brokers as are most of the other seven-year fixes, apart from Yorkshire Building Society.
This is because these lenders are aiming to provide more options for brokers to offer their customers. As such, the seven-year fix may not be suitable for everyone.
If you are considering a longer-term fix, speaking to a broker would definitely be a wise move.
Eleanor said: “Taking all 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 is offering a lower rate over the longer-term than on a shorter-term deal, whether that’s the best deal for a borrower comes down to more than just initial rate offered.
“It’s important that consumers speak with an adviser to compare their options carefully, think about their future plans, and take into account the overall, true cost of the whole package.”
Newcastle’s seven-year deal has a rate of 3.26% (3.6% APRC) and comes with early repayment charges of 5% initially, but these reduce each year.
It’s available for those who wish to borrow up to 80% of a property’s value and Newcastle will allow 10% overpayments per annum. It also benefits from £500 cashback and a free standard valuation.
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