"It seems counter-intuitive that fixing the price of their loan for a much shorter period of time remains the default option for many consumers."
Its research shows that a borrower with the average £150,000 loan would have saved £30 a month or £3,595 over the fixed term by locking into a 10-year deal in December 2016, compared with a year earlier, as a result of average rates falling by 38 bps from 3.36% to 2.98% during that time.
However average 10-year fixed rates are beginning to rise, increasing by 23 basis points between October and December 2016.
The price difference between 10-year fixes and 2, 3 or 5 year fixes has also increased in recent months, pushing up the monthly ‘security premium’ for longer-term borrowers.
In December 2016, the monthly security premium for a 10 year fix reached £115 compared with 2 year fixes; £89 a month compared with 3 year fixes; and £55 a month compared with 5 year fixes.
Shaun Church, Director at Private Finance, commented: “Today’s ultra-low interest rate environment means 10-year fixes are now less than short-term fixes were just a few years ago. With loan terms getting longer and people moving house less often, it seems counter-intuitive that fixing the price of their loan for a much shorter period of time remains the default option for many consumers.
“For many, the additional cost of a long-term deal is a small price to pay for extra peace of mind, particularly when rates are at historic lows and there is a growing sense of uncertainty about the long-term outlook for household finances and the economy.
“It is important that borrowers seek advice to weigh up all their options, but lenders can also do more to make 10-year products more appealing. Despite the fall in rates, the 10-year market is nowhere near as competitive as that for shorter-term fixes, where lenders have been known to undercut one another with sub-1% deals. The psychological barrier of locking in for a decade would also be reduced if lenders offered greater flexibility on remortgaging costs and break points within the fixed term, in case personal circumstances change.”
