The fundamental problem with regards to developing a market for long term fixed rates in the UK is how to make these deals competitive enough to entice borrowers onto them.
While not charging redemption penalties is one key factor that this new European Mortgage Finance Agency has solved, at the proposed pricing of 6.5-7% when there are shorter term fixes available that are up to 2% cheaper, it has not solved the key pricing issue. So we don't expect a mass exodus from shorter-term deals quite yet!
If this pricing issue can be resolved, this type of mortgage will undoubtedly reshape the UK mortgage market. Certainly the new European mortgage is a step in the right direction to realising the Chancellor's plan of developing a long term fixed mortgage market and David Miles, the author of the forthcoming report on the matter, will no doubt take a great deal of interest in today's announcement.
