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Daily Mail / Thisismoney

ended 31. January 2022

A journalist at Thisismoney / Mail Online is looking for snap views on two stories she is writing…

  • Story 1: Is now a good time to fix your mortgage for 10 years? 

This is pegged on the fact that Halifax has launched some best-buy rates on 10-year fixed mortgages - intermediary rates from 1.68% to 1.93% depending on LTV/fee. The journalist wants to know whether a long fix at today's rates is a good idea. Interest rates are poised to rise but what else should borrowers consider? 
 

  • Story 2: Equity Release rule change

The Equity Release Council has changed its rules so that providers must allow customers to pay back a certain amount of their balance without a penalty during the loan term. The rules on how much they can repay, and when/how often they can repay it, will still be up to the lenders - but they must offer the option on all new plans from the end of March. The journalist is keen to hear how much of a difference this might make to customers taking out equity release. Is it a good idea to make repayments along the way and are there any drawbacks of doing so? 

Deadline is 2pm today.

11 responses from the Newspage community

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Ross Boyd
CEO at Dashly.com
"Fixing your mortgage always gives you the ability to budget, which may be more important than ever for many households given the current cost of living crisis. How long to fix your mortgage for ultimately depends on your own personal circumstances and borrowers should always consider their future plans very carefully. If circumstances change, there will be early repayment charges during the fixed term and these can be costly, with ERCs likely to be more than any savings made by fixing mortgage payments. When your mortgage is 'always on', as it is with brokers who work with Dashly, you are instantly notified if and when a better deal out there appears, after switching costs including ERCs are taken into account."
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
"Long-term fixed rates have been pushed many times over the years, but always fall foul of the same issue, namely early repayment charges, which will often be thousands of pounds for most people. Nearly all fixed rates have a tie-in to the lender, so that if you pay off the mortgage in the deal term you need to pay them an early redemption charge. Now when looking at a 2, 3 or even 5 year fixed rate most of us can feel reasonably confident in our plans over that period, but how many people can honestly say they're comfortable predicting what their life will look like over the next 10 years? I've not come across many. Long-term fixed rates will be right for some people, but you have to be pretty sure of what the next decade holds for you, or at least be willing to roll that dice and hope life doesn't zig when you expected it to zag."
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
"As Ferris Bueller says, "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it". The same is true for mortgages. Unless you know that you're in your forever home, definitely won't take a new job that requires moving, you definitely won't start a new relationship or family and you definitely won't be moving in that period, you could be setting yourself up for some chunky early redemption penalties when life changes. In this day and age, few people could commit to that so I would approach 10-year fixes with a huge degree of caution."
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Aaron Strutt
Product and Communications Director at Trinity Financial
It is hard to argue that a sub-2% ten-year fix does not offer great value for money. In the past borrowers have paid a premium for the long term security but as the lenders compete for business and fight to lock borrowers in, that has been reduced. In the past borrowers on ten-year fixes have paid a fortune to get out their deals and swap to one of the cheap two or five-year fixes. The problem is they tend to have expensive exit fees and if borrowers need to sell their home because of a separation or they want to raise more cash, their options are reduced. Most borrowers tend to take five-year fixes if they want longer-term payment security, and there are some great seven year fixes. Part 2, Many lifetime mortgage providers are issuing more flexible products. They enable older borrowers to make overpayments each year to reduce the amount of interest rolled up annually. They are also providing portable mortgages so borrowers can move to approved properties while getting downsize protection protecting them against negative equity. The cheapest ever life time mortgage interest rates, and rising property prices, are tempting older homeowners who have equity in their property to release funds often to to repay debts, gift money to family members and even provide funds for emergencies.
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Rob Peters
Principal at Simple Fast Mortgage
Story 1 - 10 Year Fix Approach with caution! Whilst in the current climate of rising interest rates, it may seem a good idea to fix your mortgage costs for as long as possible, borrowers need to think carefully, as these products usually carry an early repayment charge for an equally long period. This means that if you want to repay part or all of the mortgage within 10 years, you could face a hefty penalty to do so. The chances are this would outweigh any interest rate saving already made. Story 2 - Equity Release We see this positive move by the Equity Release Council as not so much reinventing the equity release wheel, but more about formalising an option many lenders have been offering to borrowers for some time. It's commonplace that lenders will offer equity release borrowers the option to either service the interest in full / part each month, or make ad hoc repayments of capital throughout the year. Of course, some borrowers do not want to (or don't have the means to) make repayments, and that is fine; it's totally optional. However, for those borrowers that do want to make repayments, these options can be a fantastic way of managing (or stopping altogether) any build up of interest, or reducing the mortgage in a more conventional way over a number of years.
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Jonathan Southgate
Founder at Sterling Southgate
"For borrowers in lower loan-to-value brackets seeking long-term stability in mortgage payments and who no intention of moving and no intention of improving their home, this could be a great fit. However, for those in higher loan-to-value brackets seeking to improve their home and property value then shorter term solutions may prove more suitable."
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
"Long fixed rates are all well and good if you have your life planned for that term, but if you're anything like me I have no idea what I'm doing tomorrow let alone in 10 years. On face value, what seems a good deal could cost you dearly in the long term if your circumstances change or you just fancy a change." "This is nothing new, most providers already offer a facility to overpay by a certain amount without penalty, but giving the lenders the control of when and how much does not really help the end customer. It could potentially put customers in a worse situation with lenders reducing the amount they can repay. Repaying the loan early like any mortgage has great advantages, you will pay less interest over the term and potentially leaving loved ones more of an inheritance. The most important thing is to speak to a qualified advisor. Equity release is a great product, but it's not right for everyone."
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Stuart Powell
Managing Director at Advice Guru
"All equity release lenders already allow up to 10% of the initial amount borrowed to be repaid each year, with some lenders allowing up to 40% each year. Consumers are recognising that the old reputation of equity release as an expensive, inflexible nightmare has well and truly changed. Record lending of £4.8 billion last year shows that over-55 year old homeowners are now using Equity Release as part of their overall financial planning in droves. Whether it's to pay off an existing mortgage, help children onto the property ladder or improve their own living standards, Equity Release is here to stay."
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Graham Cox
Director at Bridging Hub
Story 1. With inflation raging, the era of incredibly cheap credit might be coming to an end. Every borrower is different, but in general, fixing now at a low rate for 10 years could very well look like a smart decision in a couple of years time. Particularly for younger borrowers, where affordability is often most stretched in the early years of the mortgage. One potential drawback is early repayment charges during the fixed rate period. However, if you move, most lenders will allow you to port your current mortgage product over to the new property without incurring an ERC.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
"I think a change that gives borrowers the right to pay back their Equity Release/ Lifetime Mortgages without penalty is welcome. Sometimes ones circumstances change and so the added flexibility could save them tens of thousands of pounds."
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Robert leatherland
Director at Bespoke Wealth
Homeowners released £4.8bn form their homes in 2021 through Equity Release, the features are continually improving on the products, this is another example of just how flexible the products have become. Equity Release can be used in many different ways through Financial Planning. Having the ability to make repayments may be beneficial to some clients to reduce the amount owing on their estate upon their death. Others may find this as a disadvantage, some clients use Equity Release to Raise funds on the basis they do not need to repay the balance until their death, seeing this as a major advantage whether they are raising money for school fees, income for retirement, estate planning or holidays and luxury experiences. This change demonstrates the need to take the correct financial advice and the importance of having financial planning in conjunction with Equity Release advice, rather than just taking out equity release to ensure this is the correct action to take form themselves, their estate and their family.