There’s now a mortgage rate below 4% – but is it worth fixing for 10 years to get it?

A popular topic of conversation among real estate experts at the beginning of this year was whether the interest rate on fixed mortgages would drop below 4 percent again.

They didn’t have long to wait, as within the first five weeks Virgin Money put one out at 3.99 per cent – though anyone who pulls it out has ten years to recover.

Due to the rapid rise in interest rates following the autumn mini budget, the average for both two- and five-year fixed rates rose to more than 6.5 percent in October.

However, interest rates have fallen steadily since then, despite successive increases in key interest rates by the Bank of England.

This year there is no mortgage with a fixed term of two or five years with a rate of less than 4 percent. According to Moneyfacts, the average two-year fixed mortgage rate in February was 5.44 percent, with a five-year rate at 5.2 percent.

But looking at the cheapest rates on the market, some lenders are starting to break the 4 percent mark.

Lender Platform currently offers a five-year fixed deal at 4.16 percent for those with a 40 percent down payment, while Newcastle Building Society has a two-year fix at 4.35 percent.

And the second-best ten-year solution after Virgin is Halifax, at 4.04 percent.

While brokers expect mortgage rates to continue falling, despite the Bank of England indicating that base rates are not yet at their peak, there is a general consensus that mortgage rates will fall somewhere below 5%.

Five-year interest rate swap rates for mortgages are currently around 3.5 percent, suggesting that banks believe interest rates will be at this level five years from now.

But as we saw in the fall, events can change quickly and no one can ever say for sure where prices will be at any point in the future.

So if you re-mortgage or buy a house, is it worth going for a 10-year deal?

Ten-year mortgages: the advantages

The strongest argument for fixing your mortgage for 10 years is the security it brings.

If your current home is going to be your “forever home” and you want to create a plan to pay off the mortgage by a certain date, a ten-year fix gives you the ability to plan long term.

It also insulates you against any future rate hikes. For the next year or so, many brokers say interest rates between four and five percent will be the “new normal” – so it could allow you to lock in your mortgage at that sort of level.

However, it is more difficult to predict where mortgage rates will go further into the future. If they fell, you would be overpaying and unable to get out of the mortgage without paying a prepayment fee.

That may be easier to swallow for those who don’t have long on their mortgage and may be paying less each month.

“Tying yourself to a 10-year period only makes sense for those who are coming to the end of their mortgage and want the security to know what they’re paying and not have to review,” says Nicholas Mendes, technical director of mortgages at John Charcoal.

Ten-year mortgages: the disadvantages

For first-time buyers or those in second place on the real estate ladder, a cheap ten-year fixed rate may sound appealing.

But right now, the Virgin Money deal and the Halifax fare – the next cheapest – are only for those with large or medium deposits.

For borrowers needing more than 75 percent loan-to-value, the price of a 10-year fix rises to about 4.82 percent, more expensive than many of the shorter, fixed-term contracts.

The lack of flexibility in the product can also affect borrower decision making.

Having kids or having to move for a job can change what you want from your property, and ten years is a long time to commit to one home.

Some long-term agreements allow you to take the mortgage with you to a new home, but it still has to meet the lender’s requirements and so can’t always be guaranteed.

If homeowners have a sudden change of circumstances, such as a significant raise in salary or job loss, they could be trapped by eye-watering prepayment fees to escape the loan.

Riz Malik, director of R3 Mortgages, says: ‘It can be tempting to consider long-term fixed rates and many people did last year when interest rates were volatile.

“However, these products usually come with a stepped or fixed prepayment fee. This means that if your circumstances change, you may have to pay a hefty fine to end the deal.”

The second big risk is that rates drop significantly and you end up paying too much on your mortgage, compared to those who can take out new loans.

While fixed interest rates on mortgages are currently expected to be between 4 and 5 percent, some experts expect prices to fall through 2023 and next year.

This makes it more economical to lock in for a shorter period of time, giving you the flexibility to change if rates drop.

“The price war is really in full swing with lenders constantly trying to undercut each other right now as they fight for mortgage share in a quieter mortgage market,” said Jamie Lennox, director of Dimora Mortgages.

“People will have to think carefully before fixing for such a long period of time. The promising outlook is that it won’t be long before other lenders join Virgin Money with rates below 4% and we may even see short-term fixes follow.”