Benefits for landlords locking into 10-year fixed rates

The mortgage industry is now at a stage where the popularity of certain types of mortgages could be about to shift. It used to be two-year fixed rates that landlords tended to go for but that started to change after 2016 when the Financial Conduct Authority introduced stress testing. This led to more people opting for five-year fixes, which was also influenced by the narrowing margin between two and five-year fixed interest rates.

What we are starting to see now is a nod towards even longer-term fixed rates and a number of lenders now offer 10-year products – in both the residential market as well as buy-to-let. It’s early days in the rise of the 10-year fix but I suspect it will go from strength to strength slowly and steadily.

Long-term fixes offer certainty over future mortgage payments of course, and where that underpins a business venture, as it does for the buy-to-let landlord, many can see the attraction. However, 10-year fixed rate mortgages remain niche at the moment. Data from UK Finance shows that only around 2% of residential borrowers have a 10-year fix, and there has been no significant growth in their popularity over the last four years or so.

Of course, there are pros and cons to long-term fixes with downsides including nervousness around tying in for so long. Borrowers may be put off by early repayment charges, if they think their circumstances could change and they may want to pay off the loan early. They could also be worried about the portability of the mortgage should they wish to sell the property. There are also those who like to stick with what they are used to so will keep remortgaging every two or five years.

We have seen market conditions change rapidly recently. Since December 2021 we have been emerging out of an unprecedented, long and historically low-interest rate environment. The Bank of England has made six base rate increases in the last nine months – with August’s rise of 50 basis points being the largest in 27 years. This is in response to growing inflationary pressures, and the markets are factoring in the prospect of further increases in the future. 

If borrowers can lock into a reasonably priced 10-year fixed rate now, their monthly payments will not rise for a decade, unlike essential living costs like soaring energy bills, food and petrol.

For landlords, there is also the attraction of seeing rental income grow relative to borrowing costs that are fixed for a lengthy period. And if inflationary pressures spill over into the rental market, there may be more potential to see this kind of profit growth in the years ahead.

After an extended period of stability, rates are now rising – albeit from a low base.  That at least reinforces the case for brokers and landlords to take a fresh look at the options for fixing borrowing costs over the longer term.