30-year and 40-year mortgages becoming more common in UK

Kensington Mortgages is launching a mortgage that will allow homeowners to fix the interest rate of their mortgage for up to a 40-year term.

It is the second with such a long term in the UK, though mortgages with 20- or 30-year terms are not uncommon in the US or part of continental Europe.

Kent-based Kensington has teamed up with pensions insurance specialist Rothesay to offer the 40-year mortgages.

Rothesay is reported to be interested in order more mortgages with 25-year and 30-year fixed rates.

In March this year online lender and broker Habito was the first to offer a 40-year fixed-rate mortgage, which it said would remove the cost and inconvenience of remortgaging every two to five years.

Such offers come as the Bank of England is expected to begin inching interest rates higher from their historical lows.

Kensington told the Financial Times its “Flexi Fixed for Term” mortgages will allow borrowers to fix the rate paid on their mortgage for the full term of the loan of up to 40 years.

Chief executive Mark Arnold said fixed-for-term mortgages are already popular in some parts of continental Europe and the firm feels they are likely to become “increasingly attractive” as central banks lift rates, while Rothesay said it believes the mortgages will be attractive for homeowners who want more certainty.

Under the Kensington offer, a 35- and 40-year mortgage with a 60% loan-to-value (LTV) will see rates start at 3.16% and 3.34% respectively.

For a 15-year mortgage, the rate would start at 2.83% at the same LTV.

For comparison, a three-year fix on average is currently 1.2% and a five-year on 1.4%, according to the Statisa website.

Rothesay is planning to announce further partnerships with other lenders soon, the FT reported. As a pensions insurer, it needs fixed long-dated assets to match up with its fixed, long-term liabilities.