Lloyds Bank launches cheapest mortgage on record: but is it right for you?

Lloyds Bank has launched the cheapest 10-year mortgage the UK has seen since records began. Here’s a look at whether it could be right for you.

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Lloyds Bank has launched the cheapest 10-year mortgage the UK has seen since records began, according to a report in The Telegraph.

The low-cost mortgage has a fixed interest rate of 1.66% and comes at a time when UK homeowners face rising energy costs and increased living expenses. But is a 10-year commitment right for you? Here’s a closer look at the detail behind the headline.

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[top_pitch]

What is the Lloyds Bank fixed-rate mortgage deal all about?

According to brokers, it’s the lowest fixed-rate deal ever seen on a 10-year mortgage. Previously, the cheapest mortgage on record was offered by TSB (1.74%). The lowest rate ever offered by Lloyds was previously 1.99%.

However, the 1.66% offer isn’t available to all home buyers – it’s only open to those remortgaging. You’ll also need a 40% deposit (at least) and pay a £1,000 fee.

But that’s not all. You’ll face a 6% early exit penalty if you want to leave the deal within the first five years. According to mortgage brokers, this is higher than average. You can still be penalised after five years, but you’ll be charged according to a sliding scale.

Who else offers cheap 10-year mortgages?

A number of lenders have introduced or lowered rates on their 10-year mortgages.

Halifax has just launched a low-cost 10-year mortgage at 1.68%. The mortgage is available to anyone moving home. However, you’ll need a minimum 40% deposit and have to pay a £999 fee. If a 40% deposit is too high, a 25% deposit makes you eligible for a 1.77% 10-year fixed-rate mortgage (plus the £999 arrangement fee).

Leeds Building Society also offers two 10-year fixed-rate mortgages, one at 2.08% (up to 65% loan-to-value ratio) and another at 2.14% up to 75% LTV. 

The flurry of 10-year fixed mortgages reflects an increase in interest from homeowners and home buyers. In fact, according to tech firm Twenty7Tec, searches for 10-year fixed-rate mortgages rose by 70% at the end of January. 

[middle_pitch]

Is it worth fixing your mortgage for 10 years?

If you’re remortgaging or looking to move, these offers look enticing. After all, some mortgage brokers and analysts are predicting that by the end of the year, interest rates could increase five times. That potentially means a typical mortgage could rise by more than £1,000.

With that in mind, locking in an ultra-competitive 10-year fixed rate looks like a good deal, right?

Well, don’t forget that by its nature, a 10-year mortgage lacks flexibility, and you’ll pay hefty penalties if you want to switch lenders. You’re also likely to face fees if you want to pay off your mortgage earlier than scheduled too. Plus, if interest rates fall, you won’t benefit from any reductions as you’ll be tied in for the remaining mortgage term.

Ultimately, whether a 10-year mortgage is right for you really depends on your personal circumstances and your appetite for risk. While there is definitely less flexibility in a 10-year mortgage compared to a two- or even five-year mortgage, it could protect you from increases if interest rates soar in the short term.

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