Home buyers will soon be able to secure their mortgage for four decades, following the launch of Britain’s first 40-year fixed-rate loan.
Mortgages that allow borrowers to lock in their rates for more than 10 years have been rare since the 2008 financial crash, with risk-averse lenders typically offering fixed-rate contracts for two to five years.
But lender and broker Habito expects appetite for long-term fixed deals to increase, after today unveiling a mortgage that allows buyers to fix for 40 years.
The deal will be available to first-time buyers, movers and remortgeants in England and Wales from next week. The mortgage, which, according to Daniel Hegarty, boss of Habito, would “permanently and profoundly” change the market, is not subject to prepayment charges or exit charges.
This means borrowers will pay the same monthly payments for the duration of the transaction, which some homeowners prefer because it supports future budgeting.
Mr. Hegarty said, “The mortgages we have today are vestiges of a different age and different power dynamics between clients and lenders.
“The future has never been more predictable and we need our homes for security and financial security.”
One of the advantages of a fixed rate mortgage is that borrowers are protected against possible increases in interest rates, but it also means that they will not see any change in their monthly payments if rates go down. .
While adoption of longer fixed-rate contracts has been limited in the past, Hegarty said the absence of a prepayment charge would be a “big differentiator” for Habito.
“From the client’s point of view, the idea of locking yourself in for 30 years, then in two years of realizing that you’ve made a horrible decision and there’s no way out, is something hard to digest, ”he said.
Habito One mortgage rates start at 2.99% with a range of deposit options ranging from 40% to 10%, with the lender confirming plans to offer 5% mortgages later this year.
Competing loans could soon follow. As part of the government’s plans to create ‘Generation Buy’ under his leadership, Boris Johnson asked ministers last year to pursue plans to encourage long-term fixed rate mortgages with 5% deposits.
However, Bob Hunt of Paradigm Mortgage Services, a broker, said that historically there hasn’t been a huge amount of interest in longer-term fixed rate mortgages.
“However, the market could now be more open to such loans, especially if they are offered to first-time buyers with lower deposits,” he added.
More than 100 ten-year mortgages are currently available, but few borrowers have shown interest in longer-term loans, according to data analyst Moneyfacts.
However, Moneyfacts’ Rachel Springall said most current deals are tied to customers with prepayment charges for the life of the deal.
“It’s always wise for borrowers to review their mortgage because they might find a better rate elsewhere,” she said. “It will be interesting to see the adoption of these new mortgages and to see if alternative lenders launch longer term mortgages in the current market to meet demand.”
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