Fix your mortgage for five years without the commitment: New TSB deal lets you leave early without any charges, but is it worth the extra cost?
- New deal lets borrowers fix for five years without having to pay for leaving early
- TSB’s new mortgage only carries early repayment charges up to three years
- This means borrowers are free to move or remortgage without getting stung
Borrowers can now fix their mortgage for five years without having to shell out for leaving early with a new deal from TSB.
The deal, known as the ‘Fix and Flex’, lets borrowers fix their mortgage rate for five years but, unusually, charges you for leaving early in just the first three years of the deal.
This could give some buyers the opportunity to achieve the certainty of a fixed rate without having to worry about staying locked in for the whole five years.
Early repayment charges are usually attached to fixed rate deals, and in particular cheaper deals, as lenders usually want to ensure borrowers pay interest for the duration of the deal.
TSB’s new deal lets you fix for five years but leave after three without paying any extra fees
These charges, known in the industry as ERCs, can sneak up on you if you find yourself having to move and change your mortgage before the deal is up.
Variable rate mortgages, also called trackers, usually don’t impose an ERC, offering more flexibility to change your plans but with more risk that your mortgage payments might change.
It’s for this reason that borrowers usually choose between a fixed or variable rate – the fixed offering more security, and the variable giving more flexibility.
But this doesn’t always have to be the case – as with TSB, occasionally lenders will offer fixed rate deals with no early repayment charges, often at the cost of a slightly higher interest rate.
How does it stack up?
The TSB deal carries an interest rate of 1.99 per cent up to 75 per cent loan-to-value and 2.14 per cent up to 80 per cent loan-to-value. Neither option has an upfront fee.
There are cheaper options out there at 75 per cent loan-to-value – for example, HSBC is currently offering a five-year deal for 1.49 per cent, while Yorkshire Building Society has a similar deal for 1.50 per cent.
Similarly, there are plenty of cheaper 80 per cent loan-to-value deals out there.
However, while you would pay slightly more for TSB’s new deal, it may be worth it if you are unsure whether you will be able to stay in your mortgage for five years.
TSB says it will also pay £150 towards your conveyancing costs if you hold a current account with the bank into which you pay £500 or more a month.
If you’re looking to remortgage the deal is available today, and will be available to first-time buyers from 17 July.
Is there anything else like this?
Leeds Building Society currently still offers its ‘Flexit’ mortgage, which allows borrowers to fix for five years without any early repayment charges at all.
This deal is available for borrowers with a deposit or equity of 25 per cent or more and comes with a fee of £999.
The deal is marginally more expensive than TSB’s however, currently at 2.09 per cent. On a £100,000 mortgage taken over 25 years, this would amount to monthly repayments of £428.25 compared to TSB’s £423.37, a difference of £4.88 per month.
However, considering you can leave Leeds’ deal at any time you like, this extra cost is probably worth it.
It does come with a £999 product fee however, while TSB charges no extra fees.
You can use This is Money’s true cost mortgage calculator to figure out costs and compare different rates for yourself – taking into account the effect of both the rate and the fee.
There are other deals on the market that offer similar perks but they are few and far between
Chris Sykes from mortgage broker Private Finance said: ‘Lenders want borrowers to take longer term mortgages at the moment, as it reduces the risk of the loan.
‘Longer terms also allow enough time to pass to accommodate a recovery in the housing market and reduce the impact of any house price dips.
‘Because of their low rates, two-year fixed rate products are the most popular type of mortgage by far. But, with five-year terms now offering more competitive rates than historically and in some cases greater flexibility, more borrowers will opt for longer term mortgages in the near future.’
Speaking to an independent financial adviser can help you to find the right deal for you.
You can also find all the most competitive mortgage deals for yourself using This is Money partner L&C’s free search tool, and keep track of mortgage rates with our long-running guide.