Coventry Building Society is offering home buyers a rare opportunity to fix their mortgage for five years – without hefty early repayment charges.
Its five-year Fixed Flexx deal comes with a rate of 1.99 per cent and a £499 arrangement fee, meaning a £150,000 mortgage would require £635 monthly repayments.
Most fixed-rate mortgage deals slap borrowers with penalties of up to 5 per cent if they want to pay off more than 10 per cent of their total loan each year, costing around £7,500 on a £150,000 mortgage.
Coventry BS offers the only five-year fixed rate mortgage with no ERCs but is it any good?
This means that those who aren’t sure whether they’ll move house before the term of the mortgage is up – five years in this case – often opt for a two-year fixed rate allowing them to rethink sooner.
Alternatively, a lifetime tracker rate also typically won’t apply early repayment charges.
But the deal from Coventry offers the best of both worlds – five years of certainty as the rate is fixed – and the flexibility to get out of the deal without penalty if your circumstances change.
However, you will need a deposit or equity of 50 per cent or more in order to qualify for the building society’s 1.99 per cent rate.
Those with a smaller deposit can get a rate of 2.05 per cent for a maximum 65 per cent loan-to-value, 2.19 per cent for 75 per cent and 2.99 per cent for a maximum of 90 per cent.
As with all Coventry mortgages, you won’t pay any mortgage valuation fees up to a value of £650, plus it offers £500 cashback to first-time buyers and on completion of purchases.
Remember, while there are no early repayment charges you will have to hand over a mortgage exit fee of £125 if you choose to settle up completely within the five-year term.
After the five-year fixed term is up, the mortgage reverts to the lender’s variable privilege rate, currently charging 4.24 per cent.
Coventry does offer an option with the same five-year fixed rate of 1.99 per cent but without the £499 arrangement fee and a deal with a lower rate of 1.79 per cent with a £999 fee.
However, both will only allow you to overpay up to 10 per cent per year free of charges. In the first year these charges are set at five per cent, falling to three per cent until year three and then one per cent in the final year.
A spokesman for the building society said: ‘At the Coventry, we work hard to ensure that our range of mortgage products suit a variety of borrowers’ needs.
‘Our Flexx Fixed products are a popular part of our mortgage range, as they offer the security of fixed mortgage payments and the flexibility of allowing unlimited overpayments and no early repayment charges.
‘Our five-year Flexx Fixed offers a competitive rate of 1.99 per cent, and we find that longer term fixed rates such as this can be particularly popular in uncertain economic times.’
How does the five-year Fixed Flexx deal compare?
Mortgages which allow the flexibility to overpay penalty-free and the security of a fixed rate are few and far between and Coventry is the only lender to waive the charges on a five-year fixed rate term.
The nearest comparison comes from Hinkley and Rugby Building Society which offers a two-year fix without early repayment charges with a rate of 2.29 per cent.
As you might expect, anyone who does take out the Fixed Flexx deal will be charged a premium for the privilege of the extra flexibility.
The average five-year fixed rate mortgage this year carries a rate of 2.79 per cent according to Moneyfacts figures.
However the cheapest deal This is Money could find for a £150,000 mortgage repaid over 25 years was Atom Bank’s five-year fix at 1.59 per cent.
It comes with a slightly more generous maximum loan-to-value at 60 per cent and on a £150,000 mortgage would cost £606 per month to repay.
The deal comes with a £1,250 fee and charges ERCs of five per cent, falling to two per cent on overpayments.
However it comes with a much higher overpayment threshold than most, at 20 per cent, and there is no exit fee.
It’s worth noting that Tesco Bank and Metro Bank also offer the same threshold on overpayments.
Alternatively the cheapest deal on the market without penalties for overpaying at all is HSBC’s two-year tracker. It charges 0.99 per cent (Bank base rate plus 0.74 per cent for two years) with £1,196 in fees.
A £150,000 home loan with the lender, which requires a maximum 60 per cent loan-to-value, would cost £565 per month. Once the fixed term ends it reverts to the standard variable rate which currently sits at 3.69 per cent.
In addition to waiving early repayment fees, unlike Coventry, you won’t pay an early exit fee either.
Is this a mortgage worth taking?
Locking in your mortgage rate for five years does give homeowners a lot of security, avoiding any possible, and potentially unaffordable, rises in monthly payments should the Bank of England base rate creep up.
Mortgage payers breathed a sigh of relief when the Bank of England held rates at 0.25 per cent in August but the growing feeling is that a rate rise is on the cards in the near future.
Just a small change could be enough to upend already stretched household finances for those on variable rate deals which track the base rate.
The idea of fixing your rate, and being able to overpay or clear your balance without penalty should circumstances change therefore seems to offer the best of both worlds.
But you will have to weigh up these benefits against the cost of paying a higher rate now.
This is particularly important if you don’t have the sizeable deposit needed to qualify for the lowest interest rates.
Peter Gettins, of mortgage broker London and Country, suggests that an offset mortgage could be a good alternative for some.
It’s still competitive against other overpayment-friendly options, but it’ll be worth shopping around
He explains: ‘The offset option sits between the standard and ERC-free rates. This doesn’t have quite the same freedom insofar as you’re still tied in during the fixed rate, but there’s no limit on how much you can put into the offset account, so if overpayment is your goal this could also be a good option with the added benefit that you can easily get those overpayments back.’
According to Gettins, Coventry is the only lender offering a five-year fixed rate with no ERCs at all.
‘So if that’s absolutely want you want, Coventry is your only option and at the very least should be commended for making it available,’ he adds.
‘Overall, it’s great that such a product exists because for some people it’ll be absolutely what they’re looking for. Beyond that specific niche it’s still competitive against other overpayment-friendly options, but it’ll be worth shopping around.
‘However you are definitely paying a premium for this level of flexibility so if that feature isn’t particularly important, you’ll probably be better served looking at other options.’