40 Year Fixed Rate Mortgage – Good Idea or Marketing Stunt?
24th November 2021
On Tuesday 23 November, Kensington Mortgages launched a fixed term mortgage of up to 40 years. With all the chatter about mortgage rates set to rise over the next few years, you can see the attraction of longer-term fixed rate mortgages – but 40 years?
In fact, the 40-year fixed term is the headline that has caught the media’s eye, but Kensington are offering a “Flexi Fixed for Term” product. Rates depend on the fixed term chosen and amount borrowed and are available up to 95% LTV for new purchases, or 85% LTV for remortgage, and start from 2.83% at 60% LTV for a 15-year term. For the longest-dated mortgages of 35 years and 40 years, rates will start at 3.16 per cent and 3.34 per cent respectively, at a 60 per cent LTV.
Kensington also say that the mortgage is portable if you move home, and other benefits include no legal or product fees and no early repayment penalty.
While this still looks like an opportune promotion, the UK government are keen that homeowners enter into longer term loans and stop switching deals every 2 to 3 years. The reason being that this will give greater certainty to homeowners, knowing how much they will be paying over a much longer period.
These types of longer-term deals are already popular in some parts of Europe and in the UK lenders are now also offering a selection of 158 different 10-year products, according to financial information service Moneyfacts, amid expectations that the Bank rate will rise soon.
Look into a crystal ball?
At this point after all the arguments have been made, it’s difficult to see how this type of product will be successful. Shorter term loans of 3 -5 years are significantly cheaper so why you would pay more every month just to guarantee that you will pay that amount for the next 40 years? What happens if interest rates tumble again once the country has inflation under control? Who plans their life 40 years ahead with any degree of certainty? Who knows what their financial position will be in 40 years’ time?
For the last 10 years, we have been encouraged to shop around for everything from car and buildings insurance, loans, utilities, banks etc. This has undoubtedly led to greater competition which in turn has benefited the consumer. Society has got more used to switching providers to guarantee the best deals and now the government want to stop us doing so. Sorry, but that genie is well and truly out the bottle.
Alison Mitchell, director and mortgage adviser at IFA RobMac said “As an independent mortgage adviser we have access to all lending products but I can’t honestly see a lot of our clients finding this an attractive proposition. There are still many competitive deals available, even with the prospect of increased interest rates due, that are significantly cheaper than Kensington. I’m confident that people who continue to switch their mortgage deal say every 2 or 5 years, will be paying less than this type of long term deal.”
If any of the above is of interest to you and you would like to discuss your mortgage further, you can arrange to meet online with one of our financial advisers by scheduling an online meeting here >>
Robson Macintosh & Company Ltd.
15 Manor Place, Edinburgh, Scotland, EH3 7DH
Tel: 0131 226 6700 Email: email@example.com
Registered in Scotland No. - SC232903.
Registered office: 15 Manor Place, Edinburgh, EH3 7DH
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