Unveiling of fixed rate first mortgages up to 40 years

Long-term fixed rate mortgages are a new option for buying a home (Photo: Getty Images)

When looking to buy a home, it can be a bit confusing.

Do you want a fixed or tracker mortgage? Two-year contract or five-year contract? What if you plan to move again in a few years?

Online mortgage broker Habito is trying to shake things up with a product that has never been seen in the UK before – a fixed rate mortgage that costs the same for up to 40 years.

How is the Habito One mortgage different?

Most fixed rate mortgages offer an interest rate that lasts two or five years (although about 10 years offers exist). During this period, you know exactly what you will be paying and that will not change.

After this period, you can pay the lender’s standard variable rate or choose to move on to another transaction for another set period.

While this provides security, there is usually a fee for leaving your agreement early.

The alternative is a follow-on mortgage where the interest rate you pay is based on an external rate – usually the Bank of England base rate – plus a fixed percentage. Although this number is currently low, it can increase quickly and you may find yourself paying much higher bills than you expected.

Habito One mortgages, however, would allow homeowners to fix their payments for up to four decades, with no early exit fees.

This would mean that they would know exactly what the cost would be for the term of the mortgage, even if the rates change.

Interest rates for Habito One mortgages start at 2.99%, up to 5.35% for those with a 35-40 year mortgage with a 10% down payment (90% of the value of the mortgage). ready).

When the product launches on March 15, Habito will offer 60% to 90% mortgages, but it plans to add a 95% mortgage over the summer.

What are the costs involved?

All Habito One mortgages come with an upfront fee of £ 1,995, which is much higher than the fees charged by most other lenders.

While there is no early exit fee, if you move and increase your loan, you will need to pay another product fee, as well as appraisal fees and legal fees.

Is It Worth Fixing Your Mortgage Rate?

While this type of mortgage can appeal to those who want to know exactly what they are paying over a long period of time, the interest rates are higher than some shorter contracts.

This gives the flexibility of being able to relocate whenever they want without the additional costs of changing your current contract. Usually, a sudden change in circumstances does not coincide with the end of a fixed term, which means that the movers have no choice but to pay the additional costs.

Of course, customers are also free to leave and switch providers whenever they want – so if the long-term option doesn’t work for them, they could get a two or five-year deal elsewhere.

Daniel Hegarty, Founder and CEO of Habito, says: “The mortgages we have today are vestiges of a different age and different power dynamics between clients and lenders.

“The future has never been less predictable and we need our homes to provide us with security and financial security.

“The vast majority of us with a mortgage that is fixed for two to five years are effectively trapped in a system that does not match our financial future or our home buying habits.

“Worse yet, it requires that we continually switch to a new product.
before we get bitten by a higher rate. This cycle is expensive, long and repetitive – around £ 1,000 each time up to 10 times over the life of the mortgage.

“And although Habito does provide free mortgage advice, some brokers still charge around £ 500 to advise on a remortgage, and that adds up over the life of a mortgage.

“Three-quarters of homeowners (73%) said they would like the opportunity to do more with their household finances in 2021, but half are unable to remortgage in the next 6 months as they are tied to their current agreements.

“Our extensive research on long-term fixed rate mortgages tells us that homeowners value flexibility and certainty above all else. The current system is
designed to offer neither. Our Habito One mortgage will allow people to plan their lives, make their next move, pay off their mortgage – all without punitive charges. ‘

But not everyone is convinced by the idea.

Jo Thornhill, financial expert at MoneySuperMarket said: “40-year fixed rate mortgages may sound appealing to those who need certainty and security – but does this product really give homebuyers what they need?

“There may be few buyers who want to be stuck with a mortgage for decades and the rates look expensive compared to other long-term fixed rates. On the plus side, there are no prepayment fees and the offers are portable.

“It’s likely that there will be better value and savings over the life of the loan by entering into competitive five- and ten-year deals. This way, borrowers can have long-term fixed rates, cut costs, and keep their options open.

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