Specialist lender Kensington Mortgages has launched a 40-year fixed rate mortgage meaning borrowers will pay the same rate for up to four decades. The interest rate will start at 3.34% and will not change even if the Bank of England increases their official cost for borrowing. It is very rare in the UK to find a fixed rate which covers the entire term which is typically 25 to 35 years – most fixed rate mortgages last 2-5 years, and very atypical to find one which will cover up to 10 years.
Interest rates have hit a record low in 2021 of 0.1% – however the BoE is predicted to increase the rates in the near future. If you opt for a long term fixed-rate mortgage allows you to reap the benefits of record low interest rates for longer. All sounds pretty amazing right? So what could be the downfalls of such a deal?
One of the disadvantages of agreeing to a long term fixed rate mortgage is that if you want to pay off the mortgage early you could face large fees – typically if you want to leave the mortgage in the first 15 years you will need to ay a fee of 7% of the balance you have left. However, if you are selling the property there are no penalties – it is also worth noting that penalties are not applied if the mortgage holder dies or is impacted by a critical illness.
If you are thinking of applying for a Kensington Mortgage at fixed-rate for 40 years, you need to know the deposits available are at 40% and 50%. Interest rates for people fixing 40 years start at 3.34%. The lowest rate is available to someone with a 40% deposit. This means they are borrowing 60% of their home’s value, and paying a £1,499 arrangement fee. People with only a 5% deposit will pay a higher rate of 4.16%, if they pay the same arrangement fee. Rates start at just 2.83% for those fixing for shorter terms between 11 and 15 years.