10 year fixed rate mortgage at 4.99% - a good deal or a fix too far?

Andrew Hagger from Moneynet.co.uk looks at the new 4.99% ten year fixed rate mortgage from Yorkshire Building Society.

The market for long term fixed rate mortgages is almost unrecognisable to that at the height of the property market three years ago. There are currently only a handful of fixed rate products with a term of 10 years whereas in June 2007 there were in excess of 85 fixed rate products to choose from with terms of between 10 and 30 years (Details in tables below).

Shorter term fixed rate deals have always been the more popular choice amongst consumers, however with the new coalition government warning  that the next few years are going to be painful, maybe the certainty of payment amount and peace of mind offered by a longer term fixed rate will start to have greater appeal.

The level of uncertainty surrounding the UK economy is greater than it's been for a very long time with inflation running higher than forecast and experts split as to when and how quickly interest rates may rise.

As well as the general uncertainty surrounding the UK economy, there is also a potential issue of a £300 billion mortgage funding gap to take into account.

The gap has been plugged temporarily with government funds via the special liquidity scheme and the credit guarantee scheme. However both of these schemes will have expired by 2014 with a danger that lenders will be unable to refinance this sum in such a short timescale.

As a result we could face a potential severe undersupply of credit in the UK with the possibility that mortgages may have to be rationed.

The 4.99% offer from Yorkshire BS is an attractive looking rate and is currently a best buy, with fewer than 40% of mortgage lenders now charging a SVR lower than this.

There will always be people putting off their decision to fix until they think that rates have bottomed out, but unless you are monitoring the market very closely you risk missing the boat as rates can suddenly turn and start rising quite sharply before you've actually made your mind up.

Apart from ease of budgeting, one of the main plus points of a 10 year fixed rate are that you only have one lending fee to payout compared with five separate fees if you opt for a ‘switch every 2 years' strategy.

Paying out £1000 in fees as opposed to £5000 over 10 years equates to a saving of £33.33 per month.

It's not just the lending fee you need to consider, there's potentially redemption fees, valuation and legal fees too - not to mention the hassle factor. Most of these long term fixed rate products are portable, so you can take them with you when you move house and there is also an element of flexibility with overpayments (typically 10% of capital) permitted.

The down sides are obviously that shorter term fixes and tracker products are currently quite a bit cheaper, but with many trackers operating on margins of 2-3% above base rate, it won't take too many rate rises for the 4.99% figure to be breached.

If you compare the Yorkshire BS 10 year product with the table topping five year fixed best buy from Co-operative Bank at 3.99%, this latter works out at £3436 cheaper over the first five years , however you need to take into account that you'll probably have to pay a further £1000 plus when you remortgage and who knows at what level rates may be at come 2015.

So whilst 10 years may still seem a fix too far for many people, with a competitive sub five per cent rate and all the uncertainty surrounding future mortgage funding and the wider UK economy, it will be interesting to see the level of take up for this product and whether other providers will re enter the long term mortgage market.