UK homebuyers offered first 40-year fixed-rate mortgage

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Borrowers are being given the chance to lock their mortgage repayments at the same level for up to 40 years with the launch of the longest fixed-rate deal on the market.

The lender Habito plans to launch a range of mortgages for borrowers with a 10% deposit that offers fixed-rate terms of up to four decades. The rates are based on the size of the deposit and how long the borrower wants to repay their mortgage.

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Someone taking the 40-year option with a 40% deposit will fix at 4.2%, while a borrower with just 10% to put down will pay 5.35%.

Typically, mortgages were arranged over 25 years, but high house prices and stringent affordability tests have led to borrowers extending their repayments over a longer period, even though over the course of the mortgage they will pay much more in interest.

Many opt to lock in to a fixed rate for only the first few years of their borrowing, because these tend to have lower rates, and switch to a new deal after that.

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Long-term fixed-rate mortgages are popular in other countries but have never taken off in the UK, despite previous moves to encourage lenders and borrowers to consider them.

A 2004 review of the mortgage market recommended them, but in the intervening years only a handful of deals offering a fixed rate for longer than 10 years have been launched.

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The 95% mortgage guarantee announced in last week’s budget came with a condition that lenders offer borrowers the opportunity to fix their rates for at least five years, which the Treasury said would offer “valuable extra certainty”.

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The Habito One mortgage lets borrowers fix their interest rate for a term from 10 to 40 years, with those opting for the longest terms paying the highest rate.

On a 10- to 15-year term and a 40% deposit the mortgage has a rate of 2.99%, which compares with a rate of 1.28% on a best-buy five-year fixed rate. Borrowers will pay a £1,995 fee for the loan, but there are no early repayment charges, so they can switch to a new mortgage if they want, or pay off their debt early.

The lender plans to offer 95% mortgages from early summer.

Daniel Hegarty, the founder and chief executive of Habito, said: “The future has never been less predictable and we need our homes to provide us with safety and financial security.

“The vast majority of us on a mortgage that’s fixed for two to five years are effectively trapped in a system that doesn’t fit our financial future or our homebuying habits.”

David Hollingworth at the mortgage broker L&C said the 40-year rate was “something of a departure from the mainstream maximum fixes of 10 to 15 years”.

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Early repayment charges had previously been a problem with long-term fixed-rate offers, he said, as borrowers often liked the flexibility to review their mortgage at a later date.

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“This product addresses that problem head on and removes the early repayment charge altogether, meaning that it has flexibility not generally associated with long term deals,” Hollingworth said.

Another deterrent was interest rates, he said, with borrowers often concerned about paying more in the short term even if it did offer long-term security. “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.”