Habito to launch longest ever fixed-rate mortgages – should you apply?

The online mortgage broker Habito is placed to produce the longest-ever fixed-rate mortgage, allowing homebuyers to secure their rate for up to 40 years.

The new ‘Habito One’ range will enable borrowers to pay a collection rate of interest for his or her full mortgage term, eliminating the necessity to remortgage every two or five years.

Here, we explain how the brand new deals works and analyse whether the mortgages’ rates allow it to be worth locking in.

What is Habito One?

Next Monday (15 March), Habito will launch its new ‘Habito One’ range, so it claims will ‘permanently and profoundly affect the landscape of Britain’s mortgages’.

The new deals will allow first-time buyers, home movers and remortgagers to fix their rate for the full term of their mortgage, which can be anything between 10 and 40 years.

Currently, borrowers most commonly treatment for either two or 5 years and remortgage after their fixed term. Some 10-year and 15-year year fixes can be found, however these deals are pretty rare.

Habito claims the ‘continual cycle of remortgaging’ every two or five years can cost around lb1,000 every time, and says its new range will instead offer ‘full treatments for monthly budgeting forever’.

Habito One: the way the fees and charges work

The considered locking in your type of loan for many years may appear like a huge risk, but Habito is seeking to deal with this by permitting borrowers to switch deals every time they like without having to pay early repayment charges (ERCs).

ERCs are traditionally the biggest drawback of long-term fixes. They’re charged when you settle your mortgage early, either by paying it off or, more commonly, by moving home and switching to a new deal.

ERCs are usually charged on a sliding scale, if you take out a five-year fixed-rate mortgage, you will need to pay 5% from the balance should you exit the mortgage in year one, 4% in year two, 3% in year three, and so forth.

Habito says it won’t charge ERCs on any one of its new deals, allowing borrowers complete flexibility to change to other providers when they decide to. Switchers can always have to pay valuation and attorney's fees.

How do Habito’s rates compare?

Habito’s new mortgages are available at five loan-to-value (LTV) levels – 60%, 75%, 80%, 85% and 90%. It says it'll launch 95% deals this summer.

The rate you’ll pay depends upon the LTV you borrow at, and the period you decide to fix for. All mortgages provide an up-front fee of lb1,995.

As these loans allow borrowers to fix for considerably longer than any existing deals, it’s hard to compare rates like-for-like, but we've analysed three popular LTV levels below.

60% loan-to-value

Habito’s rates start at 2.99% for borrowers fixing for Ten to fifteen years, as shown within the table below.

These rates are considerably more expensive compared to competition. Barclays and Nationwide offer 10-year fixes with rates of 1.99% and fees of lb999. Virgin provides a 15-year fix having a rate of 2.55% and a fee of lb995.

The huge advantage of Habito’s deals is that all of these lenders charge significant ERCs. Barclays charges 5%, Nationwide charges on the sliding scale from 6% to 1%, while Virgin charges on the scale of 8% to 1%.

75% loan-to-value

Again, there’s a substantial gap on price between Habito’s rates and people available elsewhere.

Lloyds Bank provides a 10-year fix at 2.19% with a lb999 fee for remortgagers, while Accord’s deal for home movers costs 2.44% with a lb495 fee.

Accord is cheapest for 15-year deals, having a rate of two.56% and fee of lb495. Many of these deals include ERCs of between 6% and 1%.

90% loan-to-value

At 90% LTV, the gap in rates is slightly smaller. Nationwide offers the cheapest 10-year fix, at 3.74% with a lb999 fee. The cheapest rate for first-time buyers is from Virgin Money – 3.89% having a lb995 fee.

Nationwide’s ERCs range from 6% to 1%, while Virgin’s range from 7% to 1%.

Should are applying for a Habito mortgage?

Habito’s mortgages are extremely innovative, with no other lender currently offering a set term in excess of Fifteen years – but they will have their benefits and drawbacks.

The deals offer unprecedented certainty and flexibility: you’re taking out a home loan knowing your instalments will stay the same for the entire term regardless of interest rates in the wider market or economic uncertainty, and if you want to switch deals you’ll have the ability to do so without paying a lot of money at the begining of repayment charges.

This freedom to change deals is really a major positive point, as instead of waiting for no more your two or five-year term, you’ll have the ability to change product or provider whenever you want.

On another hand, these loans are costly, which cost is a substantial drawback. The flat rate of lb1,995 is double those of most market-leading mortgages, even though it’s difficult to compare directly, the rates available look high on paper.

Without a crystal ball, it’s impossible to tell whether these deals will stand the test of time or become more commonplace – it’s with enough contentration to say what's going to happen the coming year, let alone in 40 years.

That said, there’s little doubt that Habito’s new range has a genuine alternative to mass-market two and five-year fixes, using the safety net of knowing you can escape if you discover a much better offer elsewhere.

Which? suggestions about getting a mortgage

If you’re wanting to get a mortgage and don’t know where to begin, we’re here to help.

Our comprehensive mortgage guides provide suggestions about everything from saving for any deposit to locating the best offer and trying to get a home loan.

If you’re already a homeowner, you can find advice on switching deals within our guides on remortgaging to obtain a cheaper deal or to release equity.