50 Year Fixed Mortgage Rates for First-Time Buyers
With interest rates rising and uncertainty around mortgage rates in the coming months, borrowers are considering fixed-rate mortgages. Traditionally, these have usually been fixed for between two to five years — but a new type of 50 fixed mortgage rate may be arriving soon.
A license has just been granted to Perenna, a new lender, to offer mortgages fixed for 50 years. This is a radical move, but is it likely to become popular? What effect will 50-year fixed-rate mortgages have on the housing market in general, and particularly on first-time buyers?
If you are looking to purchase property and considering this as an option, then you should speak to an expert independent mortgage advisor to find out more details.
What are 50-year fixed-rate mortgages?
Many borrowers currently opt to have their mortgage rates fixed for between two and five years. While this comes with disadvantages for the borrower — the rates are usually slightly higher, while the fixed rate might not be an advantage if rates fall — it does have the benefit of allowing the borrower to plan with confidence, as well as protecting them against rising rates.
The new proposal would extend this idea. Longer-term fixed-rate mortgages, up to 30 years, are common in some countries, while similar deals are occasionally offered in the UK, usually to borrowers with a poor credit history.
However, 50-year fixed-rate mortgages would both extend the period and be more generally available. The government has suggested (although not yet proposed officially) that such mortgages could become generational, with children able to inherit the mortgage along with the property.
Are they a good idea?
While at first glance it might seem an advantage to have security against mortgage-rate rises in current circumstances, a 50-year commitment could turn into a ball and chain. For example, a borrower would be unable to take advantage of any fall in the rates, but also, if the mortgage includes an early repayment charge (ERC), it might be financially difficult to transfer to a more attractive mortgage at a later date.
On the other hand, a 50-year fixed-rate mortgage could be very attractive to first-time buyers. While it is not yet known what terms Perenna will be offering, some existing long-term fixed-rate mortgage lenders are offering 95% mortgages, leaving buyers just a 5% deposit to find.
In addition, this kind of security can eliminate the need for a rate-based financial stress test to ensure that borrowers can keep up with potentially rising rates. This might appeal to people buying a home they intend never to sell, while first-time buyers could find the arrangement an advantage if there’s no ERC.
What will the mortgage rates be?
Perenna, the only lender so far licensed to grant 50-year fixed-rate mortgages, has not yet announced what its terms will be. However, some general expectations can be identified from existing long-term fixed-rate mortgages.
Lenders like Kensington Mortgages, who currently offer fixed-term mortgages from 11 to 40 years for borrowers with poor credit ratings, offer between 4.34% and 5.16% for their longest-term fixed-rate mortgages. This contrasts, for example, with Barclays’ best rate of 3.14% for a five-year fixed-rate mortgage.
This, of course, relates to current rates. The likelihood is that all rates for new mortgages will be rising in the coming months, as the Bank of England raises interest rates. This leaves the possibility that Perenna’s rates will be even higher, though there is no certainty that they will charge as much as Kensington Mortgages.
How flexible will these mortgages be?
One of the big advantages of a shorter-term fixed-rate mortgage is the ability to potentially negotiate a better deal when the fixed term is finished. With a 50-year fixed-rate mortgage, you may be tying yourself to the same rate for most of your life. If the mortgage includes an ERC, it may be financially challenging to end the mortgage and negotiate another, while even moving home could prove expensive.
On the other hand, there is no information yet on whether these mortgages will necessarily include an ERC. It may be that, if there is competition for 50-year fixed-rate mortgages, some may be offered without an ERC, making them more flexible.
Should you consider a 50-year fixed mortgage?
The question of whether this kind of mortgage would be right for you, as a first-time buyer, depends partly on your personal circumstances and partly on the terms, when they are announced.
Speaking to an expert mortgage advisor will help you to navigate this and decide whether it is the right mortgage for you.
And, when you are ready to move, an expert Conveyancing Solicitor can make the world of difference to your journey.
At Osborne Morris & Morgan, our award-winning team offers a fixed-fee Conveyancing quotation, so there will be no nasty hidden surprises at the end of your transaction. Feel free to speak to our Conveyancing Team today, on 01525 378177.