Following the Budget announcement this afternoon, Andrew Hagger of Moneyfacts.co.uk comments on the topic of longer term fixed rate mortgages:
Uncertainty is a key deterrentAs 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
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