A mortgage offering fixed monthly payments for 40 years was launched this week – and that could mean some homebuyers will be able to borrow more money than with a standard deal.
Kensington Mortgages’ Flexi Fixed for Term agreement allows borrowers to set their interest rate for the entire term of the loan, which can be set between 11 and 40 years.
It’s similar to the one launched earlier this year by lender Habito, which is still available and also offers a fixed rate for up to 40 years.
Rates on the Kensington Agreement on a 60%-to-the-value (LTV) mortgage start at 2.83% for a 15-year term and go up to 3.34% for a 40-year fix.
The loan is available up to 95% LTV for new purchases or 85% for remortgages. Rates are higher on large LTVs.
The launch comes as the era of ultra-low interest rates is expected to come to an end and the only way is to go up. Many economists predict that there will be a succession of interest rate hikes, starting with one next month, which could affect millions of mortgage borrowers.
Kensington says that the fact that the monthly payments will not change will give borrowers “certainty and peace of mind.”
No prepayment charges apply if you move, sell, or if serious illness or death occurs.
Kensington says the affordability assessment is based on the fixed interest rate, not a higher standard variable rate that you might well continue after a few years if you had taken out a shorter fixed rate standard contract. âSo many customers may be able to borrow more – a big advantage for first-time buyers or those looking to buy more expensive property,â he added.
David Hollingworth of broker L&C Mortgages said that while the idea of ââlocking in your rate low enough may be appealing, “you have to understand what you are getting into.”
It is partly a question of “weighing the stability [offered by this type of mortgage] compared to the lower rates you can get on a five-year contract, for example, âhe added.
Nick Mendes, technical manager of mortgages at brokerage John Charcol, says there are risks to consider when considering a longer-term fixed rate. âIt is difficult to predict future rate hikes during the fixed rate period,â he said. “They could continue to rise or fall, as we have seen over the past 10 years.” A lot comes down to âwhat price are you willing to payâ for the security offered by long-term patches.