New 40-year fixed mortgages – are they any good for buyers?
HOME buyers can soon fix their mortgage for 40 years as lengthier loans make a comeback.
Available through broker and lender Habito, it means homeowners may never have to remortgage.
Loans fixed for more than 10 years largely disappeared following the last financial crisis, although LiveMore Capital currently offers 20-year fixes.
Long-term fixed mortgages are riskier for lenders as the cost of the loan could increase throughout the lifetime of the deal.
Their return means first-time buyers, home movers and people looking to remortgage can fix their home loans from 10 years up to 40 years.
The mortgages will be available from March 15 to borrowers with deposits as low as 10% and Habito also plans to add 5% deposit deals in the summer.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
Mortgage guarantee scheme - The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it's eligible for homes up to £600,000.
If you take out the lengthy loan and pay it off earlier, Habito said you won't be hit with early repayment charges or exit fees.
You'll also be able to switch or move home without penalty.
The interest rates range from 2.99% for a 40% deposit mortgage fixed over 10-15 years, up to a hefty 5.35% for a 10% deposit loan fixed for 36-40 years.
The deals also come with a £1,995 product fee, which you'll pay if you take out the so-called Habito One mortgage or increase your borrowing.
The new mortgages will only be available to people in England and Wales.
The Sun has asked the UK's major mortgage lenders whether they plan to introduce similar mortgages.
Barclays, HSBC, Lloyds Banking Group and Santander said they currently have no plans to, while Virgin Money said it's offering up to 15 year-fixes for now.
Are the lengthy mortgages any good?
The lengthy mortgages will enable you to lock into a particular rate, giving you certainty over future repayments, which would remain the same.
They'll also safeguard you against possible interest rate rises.
Plus, they'd remove the cycle of re-mortgaging regularly as well as the fees that often come with taking out a new mortgage.
However, if interest rates fall, you'll lose out as your mortgage payments and rate will remain the same.
You also pay over the odds to fix your mortgage for 40 years, meaning it'll cost you a lot more in interest over the term of the loan.
How do you find the best mortgage deals?
WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You'll also have to decide if you want a fixed-deal where the interest you're charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statement.
The average interest rate for a two-year fixed mortgage with a 10% deposit is currently 3.52%, according to data by comparison site Moneyfacts.
Meanwhile, the average rates for five- and 10-year fixes are currently 3.67% and 3.94%, respectively.
If you fixed a £200,000 loan over 40 years on Habito's 5.35% interest rate, it would cost you a whopping £485,380 over the repayment term - meaning £285,380 would be spent on interest alone.
While if you remained on a 3.52% rate for 40 years, you'd pay £173,048 in interest over the term of your loan - £112,332 less than Habito's deal.
Of course, there's no guarantee that interest rates will remain the same over the coming 40 years, unless you fix.
But the calculations by Moneyfacts are a good example of how the interest rate plays a big role in the total amount you pay to your lender.
If you can put down a bigger deposit, you'd naturally get a better rate and would pay less in interest.
There are currently more than 100 decade-long mortgages available.
However, Rachel Springall of Moneyfacts said most of the present deals tie in customers with early repayment charges for the duration of the deal.
She added: "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."
While David Hollingworth of broker L&C Mortgages told The Sun the rates on longer term deals will generally be higher than short-term ones.
He added: "There is a price to pay now but that could of course prove worthwhile in the longer run if interest rates rise.
"The bigger the margin in the rate over shorter term products the more likely it is that borrowers will opt for the pound in the pocket today and lock in for a shorter timeframe."
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