Posted on 4 June 2013
The last time Woolwich led the headlines on the 10 year fixed rated market was back in February 2012 when it launched a 4.99% fixed for 10 years, which was available with £995 fee and for borrowers with 30% deposit.
One year and 4 months later and the same headline looks very different. The new 3.89% is the lowest 10 year fixed rate on the market. Its closest competitor Santander offers 3.94% fixed until 2nd August 2023, but requires a 40% deposit. In contrast, the deal offered by Woolwich allows borrowing of up to 70% for loans between £5,000 and £1,000,000. The fee is slightly higher than Santander’s fee of £995; standing at £1,499. Both lenders offer free valuation for remortgages with Woolwich covering the legal costs and Santander paying £250 cashback on completion. However, John Charcol calculates that if you are borrowing £96,000 or above, you will be better off with the Woolwich.
This long term fixed rate is a great offering for someone who has at least 30% equity or deposit and is looking for long-term security. In particular, it may appeal to someone taking a shorter term mortgage of 10 or 15 years instead of the ‘standard’ 25 years term and mitigating the risk for all or the majority of the mortgage term. Young couples planning to start a family may find it very useful too as it will give them the opportunity to set foot in their new home and start raising a family without worrying about their mortgage payments rising.
However, it is important to remember how restrictive fixed rates are and taking a 10 year fixed rate with the Woolwich will see any borrower ‘tied’ in with 6% early redemption charges within the first 7 years, followed by 3% in the last 3 years of the term. Although the penalties are based on the outstanding loan amount, they are pretty cumbersome as the exit cost on a £100,000 mortgage balance will be £6,000 in the first 7 years and £3,000 in the following 3 years. If a borrower had to move or sell the property, they can port the mortgage to another home, but it’s worth remembering that portability will always be subject to lending criteria at the time of porting and it may be denied if the borrower’s circumstances have changed or if the property is not a suitable security for the lender.
The key question is clearly whether you can categorically say you will be in a property for 10 Years. With a number of 10-year fixed rate deals available on the market at just under 4% there may never be a better time to switch to a long term fixed rate, so long as it is right for you. Of course, we know someone who can help you make that decision…
Categories: Mortgages London
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