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Friday 21st of November 2008
December 4, 2007

Government action needed on long-term fixed-rate mortgages


by Gill Montia
”Government

The Council of Mortgage Lenders (CML) is urging the Government to act if it wants more homebuyers to take out long-term fixed-rate mortgages.

In July of this year the Government announced that it wanted to help lenders to offer more affordable 20 to 25 year fixed-rate products.

The CML describes the appetite for this type of product as “reasonable” in principle, but points out that borrowers remain concerned about the risks of being locked into costly products.

Long-term mortgages are common in the US, Germany and Denmark and can provide stability for those who prefer to know exactly what their repayments will be, rather than take a chance on fluctuating interest rates.

However, in the UK mortgage agreements lasting more than ten years account for less than 5% of the residential market.

Experts agree this is largely because early repayment charges are high in the first ten years or more.

In a recent survey, the CML found that over 40% of respondents liked the idea of a fixed-rate loan but the majority were not prepared to sign up for more than five years.

A quarter of all those questioned were adamant they could not be persuaded to take out a mortgage for more than 10 years.

Most were put off by fears of high early repayment charges, the mortgage becoming expensive because of a fall in interest rates, and being tied to one lender.

According to Bob Pannell, head of research at the CML, “In the absence of a major policy intervention from the Government, the take-up of long term fixed rates looks set to remain relatively small for the foreseeable future.”

The CML has also spoken out this week about a potential shortage of money available to fund mortgage markets “if capital markets do not open next year”.

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Story link: Government action needed on long-term fixed-rate mortgages


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