When you’re looking to buy a home, it can all be a little baffling.
Do you want a fixed or tracker mortgage? Two-year deal or five-year deal? And what if you plan to move again in a few years?
Online mortgage broker Habito is trying to shake things up with a product that has never be seen in the UK before – a fixed-rate mortgage where the cost stays the same for up to 40 years.
What is different about the Habito One mortgage?
Most fixed-rate mortgages offer an interest rate that lasts for either two or five years (though some 10 year deals do exist). For that time period, you know exactly what you will pay and it will not change.
After that period, you can pay the lender’s standard variable rate or choose to switch to another deal for another set period.
Although this offers security, there is usually a fee for leaving your deal early.
The alternative is a tracker mortgage where interest rate you pay is based on an external rate – usually the Bank of England base rate – plus a set percentage. While this is currently low, it can rise quickly and you can be left paying bills that are much higher than anticipated.
The Habito One mortgages, however, would allow homeowners to fix their payments for up to four decades, with no early exit fee.
It would mean they would know exactly what the cost would be for the life of the mortgage, even if rates change.
Interest rates for the Habito One mortgages start at 2.99%, going up to 5.35% for those on a 35-40 year mortgage with a 10% deposit (90% loan to value).
When the product launches on March 15, Habito will offer mortgages from 60% to 90% but it plans to add a 95% mortgage in the summer.
What costs are involved?
All Habito One mortgages come with an up front fee of £1,995, which is much higher than the fees charged by most other lenders.
While there is no early exit fee, if you move house and increase your borrowing you will have to pay another product fee, as well as valuation and legal fees.
Is it worth fixing your mortgage rate?
While this type of mortgage may appeal for those who want the security of knowing exactly what they pay over a long period of time, the interest rates are higher than some shorter deals.
It does give the flexibility of being able to move whenever they want without the extra costs of changing your current deal. Usually, a sudden change in circumstances doesn’t all coincide with the end of a fixed term, meaning movers have no option but to pay the extra fees.
Of course, customers are also free to leave and switch to another provider whenever they wish – so if the long term option isn’t working for them, they could get a two year or five year deal elsewhere.
Daniel Hegarty, founder and CEO of Habito, says ‘The mortgages we have available to us today are remnants of a different age and a different power dynamic between customers and lenders.
‘The future has never been less predictable and we need our homes to provide us with safety and financial security.
‘The vast majority of us on a mortgage that’s fixed for two to five years are effectively trapped in a system that doesn’t fit our financial future or our home-buying habit.
‘Worse still it demands that we continually switch to a new product
before we get stung by a higher rate. This cycle is costly, time consuming and repetitive – roughly £1,000 each time up to 10 times over the length of the mortgage.
‘And while Habito provides free mortgage advice, some brokers still charge around £500 to advise on a remortgage, and that adds up over the lifetime of a mortgage.
‘Three quarters of homeowners (73%) said they’d like the option to do more with their home finances in 2021 yet half are unable to remortgage in the next 6 months because they’re tied into their current deals.
‘Our extensive research into long-term fixed rate mortgages tells us that homeowners value flexibility and certainty above all else. The current system is
designed to offer neither. Our Habito One mortgage will allow people to plan their lives, make their next move, pay off their mortgage – all without punitive charges.’
But not everyone is convinced by the idea.
Jo Thornhill, finance expert at MoneySuperMarket said: ’40-year fixed rate mortgages could seem attractive for those in need of certainty and security – but does this product really offer homebuyers what they need – or is it a mere ‘headline-grabber’?
‘There can be few buyers who want to be stuck with a mortgage for decades and the rates look expensive compared to other long-term fixed rates. On the plus side there are no early repayment charges, and the deals are portable.
‘There is likely to be better value and savings to be made over the life of the loan by taking competitive five and 10-year deals. This way borrowers can have long-term fixed rates, keep costs down and also keep their options open.’
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Get in touch at metrolifestyleteam@metro.co.uk.
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source https://metro.co.uk/2021/03/10/first-mortgages-with-rates-fixed-for-up-to-40-years-unveiled-14220176/
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