Reduce uncertainty to increase appeal of fixed rate mortgages - Mortgages - News - Moneyfacts


Reduce uncertainty to increase appeal of fixed rate mortgages

Reduce uncertainty to increase appeal of fixed rate mortgages

Category: Mortgages

Updated: 31/10/2008
First Published: 12/03/2008

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Following the Budget announcement this afternoon, Andrew Hagger of comments on the topic of longer term fixed rate mortgages:

Uncertainty is a key deterrent
As well as uncertainty over the future direction of interest rates, there is another perceived downside of a longer term fixed rate mortgage which may deter some consumers. If due to lifestyle changes such as a marriage breakdown, long term unemployment or inability to work due to illness a homeowner needs to switch their mortgage mid term, the early repayment penalties can prove considerable. Whilst borrowers can insure against unemployment and illness, people are still wary of tying themselves to a fixed rate for an extended period of time.

If the Government and lenders want to see an increased take up of these mortgages, then serious thought should be given to reducing the levels of uncertainty whilst still protecting profit margins. If a clause was introduced to cover uninsurable life events such as marriage breakdown whereby the borrower could switch to a more suitable mortgage (with the same lender) without being subject to an expensive redemption penalty, such innovation would perhaps make longer term deals more appealing.
If the UK market shifts towards longer fixed rate mortgages, there will be a knock-on impact on intermediaries and lenders, who will lose procuration fees and product fees respectively. Today's mortgage market survives on churn and competition, so a move to longer term fixed rate mortgages could completely reshape the mortgage arena.

The above comment is taken from the Moneyfacts mortgage report entitled: "Tougher times in the UK residential mortgage market: equipping yourself for the challenge ahead" launched on 11 March 2008

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Does your mortgage lender owe you money?

Earlier this week, the financial watchdog revealed that hundreds of thousands of mortgage holders could have been overcharged by their lender. Are you one of the many who could be in line for a windfall?

Do you think your home will rise in value?

There’s been a lot of talk recently about the rate of house price growth slowing, but is it affecting your personal expectations? According to research, it could be, with fewer people now expecting the value of their property to increase.

Confidence among “second steppers” is on the rise

We all know how difficult it can be taking that first step on the ladder, but what about the second step? In many cases, getting onto the next rung can be just as challenging, but happily, confidence among this cohort appears to be on the rise.