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15 October 2021

Most people willing to pay £1,200 more a year for longer term fixed mortgage repayments

By Kensington Mortgages
  • Eight in ten (83%) would consider a long-term fixed-rate mortgage above five years for greater certainty of mortgage repayments
  • Seven in ten (70%) renters would consider one if it meant they could buy a home instead of rent
  • Of those who would choose a long-term fixed mortgage, people are willing to pay an extra £1,200 ‘certainty premium’ each year
  • Inflexibility is the biggest barrier to wider adoption of long-term fixed mortgages – strong appetite (88%) for them if the ability to switch products was introduced and no penalty fees

14 October 2021: When it comes to mortgages, knowing how much you’ll pay every month is important. So much so that most people are willing to pay a “certainty premium” of £1,200 per year for a long-term guarantee of fixed mortgage repayments, according to new research by Kensington Mortgages.  In a survey of more than 2,000 renters and 2,000 homeowners – the majority (83%) would consider a long-term fixed-rate mortgage over a short-term if it provided greater certainty of mortgage repayments. 

However, there is a general lack of awareness around long-term fixed rate mortgages. Today, there are several long-term fixed-rate mortgages available on the market - ranging from five to 40 years. Yet a quarter of renters and homeowners (26%) believe the longest fixed-term rate available is between two and five years. 12% believe the longest is up to 40 years and 16% do not know at all. 

The new study also reveals that most homeowners are unaware that long-term fixed rate mortgages can improve affordability. If homeowners were to buy again, three-quarters (75%) would choose a long-term fixed rate mortgage if it increased their chances of borrowing more and are able to buy a bigger home.

One of the principal benefits of mortgages with a fixed rate term is that they provide certainty of fixed monthly payments for a set period.  Hence it is one of the most common products - 59% of homeowners surveyed are on a fixed rate product. However, more than two-thirds (68%) do not have a fixed-rate mortgage that exceeds five years. Borrowers on a short-term fix will remortgage more than those on a long-term and could pay hundreds of pounds in product fees each time; it also runs a greater risk of not being able to remortgage at the end of the fixed term and being stuck on a higher variable rate.

Affordability is an issue first-time buyers and renters in particular struggle with when trying to buy; one-quarter (25%) of renters who attempted to purchase a home in the last five years were unsuccessful and of these, 23% did not pass affordability checks and a quarter (25%) could not borrow as much as they needed. Yet many are eager to step onto the property ladder – 70% of renters would consider a long-term fixed-rate mortgage if it meant they could afford to buy instead of rent. Even three-quarters of homeowners (75%) would consider one next time if it allowed them to borrow more and buy a bigger home.

Despite the benefits, some general reservations are shared by renters and homeowners. The main reasons for wariness are:  if interest rates in the wider market decrease and the borrower is locked in and unable to move the product elsewhere (33%), personal circumstances changing within the term (30%) and having to pay fees if moving home (26%). 

However, when asked if they would still be concerned about these issues if there was a long-term fixed-rate product that removed these barriers, 88% would consider one. 

Kensington Mortgages is looking to expand its product range to include a number of long-term fixed rate mortgages which will offer flexibility for borrowers looking to move or sell their home. 

Vicki Harris, Chief Commercial Officer, Kensington Mortgages comments:

“While mortgage terms of 30 years or higher are the norm, our research shows that the benefits of long-term fixed-rate mortgages are less well-known. 

“These products may have higher interest rates than shorter-term mortgages in the early years, but you can often borrow more and they reduce the risk of being unable to remortgage, if any financial circumstances take a turn for the worse after the mortgage is taken out. It also acts as a protection against any future interest rate rises. 

“For some, it could be the only way to afford a property. And for those who are struggling to step onto the property ladder, speaking to a mortgage adviser about these products could be a serious alternative if they haven’t already been considered. That’s why we’re soon launching our own long-term fixed product range to help give borrowers even more choice and flexibility."

Censuswide survey conducted of 4,000 respondents (split 2,000 mortgage holders & 2,000 renters) between 27th – 31st August 2021.

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