Halifax’s 25 Year Fixed Rate Mortgage Offering

Halifax (HBOS) has joined those offering 25-year fixed rate mortgages with a rate of 6.39%. The deal has an arrangement fee of £599 and an early repayment charge of 3% over the first ten years. Nationwide is probably the biggest other player in the 25-year fixed rate arena. HBOS’s deal is very similar to Nationwide’s.

The HBOS offering looks as though it may be a good deal for smaller loans. Although the product is similar to Nationwide’s, but HBOS’s product may have a bigger influence on the market, as the rate is not that far off their five-year rates. If fully portable, it might prove attractive to those with fairly small loans. As arrangement fees have been rocketing recently, the £599 looks very competitive and would appeal to those with smaller loans where it is less of an impact. The government has been trying to push for longer term mortgages, but not all providers in the market have taken to them.

Having a longer-term fixed rate does give the borrower stability in their repayments, so they will know exactly what they’re going to paying month after month, enabling them to budget accordingly. Borrowers taking advantage of long term fixes will be immune to fluctuations in the base rate – more particularly nasty rises, which would otherwise push up their mortgage repayments sooner or later over the life of their mortgage. Long term mortgages also avoid the nuisance and cost of remortgaging very two or three years as most other deals would entail. With arrangement fees on the up and up this is a particularly attractive feature of longer term mortgages.

Drawbacks may be that the base rate could actually fall, leaving those with a fixed rate at 6.39% looking longingly out at those able to remortgage at rate nearer 4.5% when the time comes again (and with base rates seemingly always on a cycle such low mortgage rates are by no means impossible over a 25 year period). There is also the possible frustration of being stuck with repayments charges – which last longer on long-term mortgages – when you need to sell up and move out. Also, although no one likes to consider it, the future can hold all sorts of unwanted surprises: separation, divorce, death. Any of these could leave a long-term mortgage client in a very unenviable position of needing to get out of their long-term deal.

Another downside is that deals that last longer usually have higher associated fees (the HBOS deal being a notable exception) so all borrowers considering such a deal need to work through the numbers with their mortgage adviser to make sure it’s the best deal for them.

There have also been calls for lenders to allow customers to be able to borrow more money at decent rates or to reduce exit fees for early repayments.

Anyone looking for a 25-year loan has to consider that whereas a lender may be willing to offer them a loan on a property now, a different property in the future will still be subject to loan-to-value and multiple income restrictions.

Some people are sceptical about such long-term rates. They may seem attractive now as interest rates are on the rise, but when interest rates start to come down again, borrowers might not feel so happy then.

Tom Smith
9th August 2007

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