Several lenders have recently launched products which allow borrowers to fix their rate ‘for life’ with the main advantage being their payments will not change – no matter what happens to interest rates.
Kensington’s Flexi Fixed for Term’ deal is portable, which means it can be transferred to a new property should the borrower move. In this case the rate and fixed monthly payment would remain the same.
What’s more, Kensington calculates whether the borrower can afford repayments based on the interest rate as opposed to the proportion of the property’s value they are borrowing. Therefore, it could be particularly attractive to first-time buyers or those looking for a more expensive property.
Mark Arnold, CEO, of Kensington Mortgages, said the deal, which allows borrowers to fix for anywhere between 11 and 40 years, was being released as the Bank of England was on the cusp of starting to hike interest rates.
“Over the last 12 years we have become accustomed to ultra-low interest rates”, he said. “Many homeowners have never known anything else. But nothing lasts forever, and it looks very likely that we will see a succession of interest rate hikes and we may begin to slowly approach again an historical average.
“A fixed for term mortgage – already very popular in some parts of continental Europe – is likely to become increasingly attractive in a rate rising environment.
“No two people or their circumstances are the same. Whether you’re a first-time buyer or homeowner wanting an affordability boost, a self-employed worker worried about remortgaging, or someone wanting greater certainty on monthly repayments – our new Flexi Fixed for Term can help.
“With one fixed monthly payment until the mortgage ends, extra borrowing power, and added flexibility for any life events that may happen, it is that simple.”
What to consider
One of the key factors to consider when taking a long-term mortgage are early repayment charges (ERCs), sometimes also known as exit fees.
Kensington said ERCs would not apply if moving home, selling, or a critical illness and/or death occurs.
However, Jeni Browne, business development director for Mortgages for Business who also writes What Mortgage’s ‘Ask the Expert’ column, said there may be other scenarios where borrowers need to exit the deal, and in this case a penalty may apply.
She added: “It’s brilliant to see a lender challenging the status quo. However, the devil is in the detail, and some borrowers may get a nasty surprise down the line.
“Borrowers need to consider scenarios such as: how much are the ERCs if someone wants to remortgage, owing, for example, to a relationship breakup? What rates are additional borrowing lent at, and what are the criteria here?
“If Kensington does not offer additional borrowing, would they allow a second charge from a third party or consider waiving their ERC to allow the borrower to remortgage elsewhere?”
Who would the deal suit?
Jeni thinks the product would be ‘wonderful’ for someone who would not need to touch the mortgage in any way (other than nominal overpayments) during its term whilst they remained in that property.
She added: “The cost-saving element of taking a term fixed rate is only ever determined with the benefit of hindsight (i.e. what did interest rates do during the duration of the mortgage whilst it was in play). However, with 10-year fixed rates currently so low, this feels like it could be a gamble.”
