The Chancellor Alistair Darling's suggestion in his pre-budget report that ten-year fixed rate mortgages would be a good way of helping first-time buyers to get on the housing ladder, has been found to actually cost them more.
Stroud & Swindon's research has revealed that over the past 10 years, borrowers could well have been better off if they had taken out a series of two-year fixed mortgages or a variable rate mortgage.
A 10-year fixed rate mortgage taken out on a £100,000 property in 1997 would have had a rate of 7.3 per cent resulting in repayments of £88,141.20 to date. If, however, the borrower had taken out a standard variable rate mortgage in 1997 the repayment to date would be £80,340.97, saving £7,800.23.
Overall, the most cost effective option would have been to take out a series of five 2-year fixed mortgages that would result in a repayment of £77,903.76. This is a significant saving of £10,237.44, greatly outweighing the costs of any additional fees paid along the way for re-mortgaging.
Paul Chafer, sales director at Stroud & Swindon said: “Whilst it is obvious that something needs to be done in order to help first-time buyers get on the housing ladder, the current 10-year mortgage deals are not necessarily the right solution.
"First-time buyers are usually on a very tight budget so any saving they can make on their mortgage repayment helps. What is required is a flexible solution that allows borrowers to borrow more or less on their mortgage on a regular basis if and when their circumstances change.
"First-time buyers will obviously be looking to move up the property ladder so will not want to be tied into a long-term mortgage. However, this type of product could, in certain interest rate climates, be the perfect answer for borrowers who have moved into a property that they intend to stay in for a significant period of time.”
