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Grant Shapps calls for 30 year mortgages

Grant Shapps calls for 30 year mortgages

Category: Mortgages

Updated: 21/10/2011
First Published: 21/10/2011

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The Housing Minister Grant Shapps has called for lenders to offer longer term fixed rate mortgages of up to 30 years.

Speaking at a Building Societies Association (BSA) event, Mr Shapps said the introduction of longer-term products would encourage greater stability in the housing market and would represent a 'normal and sensible' choice for homeowners in the future.

There are currently no mortgages with guaranteed life-long interest rates.

Few mortgages available can be fixed for five or more years, with the deals that are available often being restricted to those borrowing 75% of their property's value or less.

Mr Shapps said that longer-term products will ensure 'people know where they stand', as they will give consumers greater certainty over the costs of buying a house in the long term and allow families on tight budgets to know exactly how much they will be paying for their home in the future.

The minister also said that consumers have 'deep-rooted expectations' that they can and should be able to shop around for a better rate and do this frequently during the term of their mortgage. "No-one wants to pay hefty early repayment fees every time they remortgage or move house," he said.

He suggested greater use of 'portable' deals – where borrowers are able to move house and keep their existing mortgage, and 'cap and collar' arrangements where the interest rate on a loan can only move within limits and borrowers are not liable to sudden repayment increases – to help make longer-term deals more appealing.

"In today's uncertain world, people want to know where they stand," he added.

"Yet when it comes to buying a home, there are no mortgages available for them where they can fix their payments for a long time - the longest fixed-rate mortgage for many is five years.

"Longer term mortgages - possibly as long as 30 years - could help families on tight budgets know exactly where they stand when they're buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.

"While they won't be right for everyone, lenders should start to look at the case for 30-year mortgages and how we can move to a more stable housing market where first-time buyers can get their first foothold on the property ladder at a cost they know they can afford."

The BSA said it endorsed the Housing Minister's aim of a stable and active mortgage market.

Head of mortgage policy at the BSA, Paul Broadhead, said that longer-term mortgages have always been made available, but had not been met with much enthusiasm by consumers.

"The challenge with fixed rate mortgages is always the balance between price and flexibility for the consumer," he added.

"The more flexible a fixed rate is the more expensive it is for lenders to fund with the knock-on higher cost to consumers.

"We are keen to hear more about the Minister's ideas on new sources of long-term market funding."

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