Kensington Launches 40-Year ‘Flexi’ Fixed-Rate Mortgage Deal

Kensington Mortgages is launching a 40-year fixed-rate mortgage. Aside from an online-only product from Habito, this is the first offering in the mainstream market.

Kensington’s Flexi Fixed for Term deal’s rate on the 36 to 40-year loans is 3.34% (40% deposit) and 4.16% for first-time buyers with a 5% deposit.

Those rates compare with Habito’s 4.41% for those with a 40% deposit, rising to 5.56% (10% deposit) for lower down payments.

Rates from both lenders are much lower for short-term mortgages.

With UK inflation currently at 4.2% and the Bank of England preparing to increase interest rates, borrowers are racing to lock in the cheapest fixed rate mortgage deals. The Bank of England benchmark interest rate is  0.1%.

The move by Kensington will likely appeal to those who don’t want to worry about rate hikes for the greater part of the lifetime of their mortgage – and who presumably think rates at current low levels will prove to be a historical anachronism never to be seen again, or at any rate for such a long period of time.

Long-term fixed-rate mortgages to become more popular in UK?

Unlike in the US where multi-decade fixed rate mortgages are the norm, terms of five years are the typical maximum with up until recently variable rate being more popular. Indeed, five-year fixed rates  account for the majority of UK mortgages.

Up until the 1980s variable rate mortgages were the norm in the UK.

As such, UK borrowers tend to remortgage on a regular shorter-term basis, with the emphasis on shopping around for the best deals as opposed to seeking to lock in a long-term rate.

Kensington Mortgages is offering terms from 11 to 40 years, financed by specialist pensions insurer Rothesay Life.

Mark Arnold, chief executive officer at Kensington Mortgages, commenting in a press release about his company’s new product, said: “Nothing lasts forever, and it looks very likely that we will see a succession of interest-rate hikes and we may begin to slowly approach again an historical average.

“A fixed-for-term mortgage – already very popular in some parts of continental Europe – is likely to become increasingly attractive in a rate-rising environment.”

Kensington 40-year fixed-rate mortgage is portable and more affordable than SVR

Arnold thinks the Kensington Flexi product may appeal to the self-employed, renters and others facing affordability issues who may be having difficulty securing a mortgage.

The mortgage is portable and there are no early repayment charges or legal and product fees. Importantly, affordability thresholds used by lenders are less stringent on fixed rate mortgages compared to standard variable rate (SVR) products.

“Whether you’re a first-time buyer or homeowner wanting an affordability boost, a self-employed worker worried about remortgaging, or someone wanting greater certainty on monthly repayments – our new Flexi Fixed for Term can help.

“With one fixed monthly payment until the mortgage ends, extra borrowing power, and added flexibility for any life events that may happen, it is that simple.

“A long-term fixed rate mortgage may not always be suitable for everyone, which is why we’ve offered as much flexibility as possible with this product. For others, it could be the only way to afford a property.

“Our latest research found out that one-quarter of renters who attempted to purchase a home in the last five years were unsuccessful and of these, more than a fifth did not pass affordability checks and a quarter could not borrow as much as they needed.”

Brits are facing a cost of living crunch. The Bank of England median forecast for inflation is 5% by April 2022. However, the retail price index (as opposed to the consumer price index) is already running at 6.0%.

Add to that rising utility bills, and tax increases next year, fixing now for longer periods could provide borrowers with the peace of mind and stability of knowing what their mortgage outgoings will be, although longer-term rates are higher than short-term ones.

Kensington research found that 83% of homeowners and renters would consider a longer-term fixed rate mortgage.