The government have been criticised for trying to persuade lenders to offer borrowers long term fixed rate mortgage deals.
Speaking to building society chiefs last week the housing minister, Grant Shapps (left), called on lenders to offer 30 year fixed rate mortgages to borrowers. Shapps believes that such long term fixed rates will offer borrowers stability and certainty; he also believes it would help first time buyers.
However, Mr Shapps has been criticised by industry experts who believe that borrowers fear long term fixed rates finding them too inflexible, and often expensive compared to variable rate deals or shorter term fixed rates. In favour of long term fixed rates is the fact that arrangement fees should be reduced as borrowers will not jump from one short term deal to another.
However most experts believe that disadvantages significantly outweigh the advantages.
Melanie Bien, mortgage expert at advisers Private Finance, is one of the experts who have concerns: “Politicians argue that longer-term fixes give stability to borrowers and the housing market but when borrowers do opt for fixes they prefer two, three or five-year deals. Fix for longer and you usually incur a hefty early repayment charge which could run into thousands of pounds.”
Indeed evidence published by the Council of Mortgage Lenders (CML) shows that around 1.8 million borrowers who have recently come off fixed rate deals are paying an average of £2,600 less per year on their new variable rate than they were on the fixed rate they were previously on.
The idea of long term fixed rate mortgages is not a new one, indeed it was first suggested by Gordon Brown as far back as 2003, when the housing market looked very different to the way it does now.
Peter Dockar, head of mortgages at HSBC, said: “This is not the first time the issue of longer-term fixed rates has been raised, the Miles Report in 2004 made similar recommendations.”
He continued “But there is limited consumer demand for them. We periodically offer 10-year fixed products, but they have only ever accounted for a very small percentage of our total sales.”