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Money matters: What's to gain with long-term mortgage?

By Simon Read

Should you be fixing your mortgage for the next decade? A new market-leading low rate - less than 3% for 10 years - was launched this week by the Woolwich. With that offer, the mortgage lender, part of Barclays, has put the focus back on longer deals.

But is it a good idea to lock yourself into a loan for such a sustained period? Or would you be better off switching to a shorter-term deal?

The advantage of fixed-rate mortgages is knowing how much your monthly repayments will be for some time into the future.

In theory, that means you will be able to rest reassured that your mortgage will be affordable for the length of your fixed deal.

In practice, it could mean you end up paying more than you need to if the rate at which you fix remains higher than standard rates for any length of time. However, with the Bank of England's base rate remaining at record lows for six years now, it looks as if the only way that mortgage rates will go is up. The question is when?

"As the base rate has been at such a low for so long, there is no doubt that some borrowers will have become complacent about the potential for a rate rise," warns David Hollingworth, associate director at the broker London & Country Mortgages.

Earlier this month the Co-operative Bank launched the lowest two-year fixed rate ever at just 1.09%, although it does require a 40% deposit and comes with a whopping £1,499 fee.

Long-term fixed rates, by contrast, had been gradually drifting up until this week, when the Woolwich launched a 10-year fixed rate of 2.99% for those who could put down a 20% deposit.

Mark Harris, chief executive of SPF Private Clients, warns borrowers to be careful before signing up for a decade. "Circumstances can change dramatically during that time, so although in theory such a loan is 'portable' and you can take it with you if you move, that still requires the borrower to fit the lender's criteria at that time - and if not, you may be refused."

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