Long-term mortgages: More deals but higher rates

Thursday, 27 March 2008 12:00 AM

More lenders are offering long-term mortgage deals over ten years, but the rates are rising on the deals available, according to new analysis.

Data from MoneyExpert.com reveal there are now 132 fixed-rate mortgage deals lasting ten years of more on the market - or 11.5 per cent of the market.

Rates on the mortgages range from 6.14 per cent to 7.59 per cent.

This compares with long-term deals accounting for 8.9 per cent of a larger market in April 2007, with average rates of 5.89 per cent, despite the Bank of England cutting interest rates twice in recent months.

Sean Gardner at MoneyExpert said: "Even though there is now more choice for homeowners, that choice also comes at a higher cost.

"Average rates on long-term deals are up, meaning the consequences of making such a big decision are even more severe.

"If interest rates start to spiral, you'll be laughing. But if they continue to drop then you could have saved money sticking to shorter term arrangements."

Long-term mortgages are set to become a bigger feature in coming years, with chancellor Alistair Darling promoting them as a means of providing stability to the housing market.

However, Mr Gardner is urging people to consider fully the effect of tying themselves into long-term mortgages.

"Homeowners could be forgiven for thinking that the recent reduction in interest rates by the Bank of England would ease the strain on their finances. But with average rates on fixed mortgages, whatever the term, on the increase, it's no wonder people are struggling to meet their repayment deadlines," he said.

"Mortgage providers are rightly nervous about exposing themselves to customers who may not be able to repay their loans, so it's understandable that the cost of a mortgage is on the up.

"People should think carefully before agreeing to high-cost, long-term deals because making the wrong decision for you could be significant."

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