GMAC-RFC, the 13th largest lender in the UK, has combined its global experience of long term fixed rate mortgages with its local reputation for innovative product design to produce a new mortgage that addresses two of today’s burning issues, namely:
- how to make long term fixed rates more attractive to UK borrowers; and
- how to bridge the gap between average incomes and average house prices without using self certification.
The 25 Year Customised Mortgage has these key features:
- pay no more than 5.95% for the next 25 years (i.e. the rest of your mortgage life for most people) on the fixed rate element;
- combine this with a penalty-free Base + 0.75% tracker in five different customised options;
- the security of the long term fix means that you can borrow up to 5 x your fully declared income;
- generous, reducing redemption charge for 7 of the 25 years on the fixed rate portion only; and
- take the mortgage with you when you move home, borrowing more if necessary at the variable tracker rate.
“Advisers and borrowers understand that paying no more than 5.95% for the rest of your mortgage life is outstanding value (see graph enclosed). The problem with these products in the past has always been the redemption penalties, combined with concern about losing out to short term rate reductions”, said Jeff Knight, Head of Marketing Services at GMAC-RFC.
“This product solves those concerns by allowing borrowers to customise the mortgage according to their interest rate risk appetite by mixing in a penalty-free variable rate tracker in five different combinations,” continued Mr Knight.
The security of a long term fixed rate also means that higher-than-normal income multiples can be allowed, which addresses another contemporary industry concern, namely the use of self certification. With the security of The 25 Year Customised Mortgage borrowers can borrow 50% more than normal to help bridge the current gap between average house prices and average incomes.
Higher income multiples combined with a long term fixed rate is responsible lending, as demonstrated by the fact that even those using the highest income multiple allowed will only pay out 24.7% of their income over the next 10 years compared to 23.8% as an average payment over the last 10 years.
“The interim report by Professor Miles looking into long term fixed rates on behalf of the Government highlights the fact that borrowers have a poor understanding of risk and therefore do not always appreciate the security that a long term fixed rate offers. The 25 Year Customised Mortgage requires borrowers to describe their risk appetite by choosing between the fixed and variable rate elements. It is hoped, therefore, that this product, with its other very attractive features, can provide a useful testing ground for the core issues raised by Professor Miles, and we are pleased that GMAC-RFC has been able to help the market in this way”, concluded Jeff Knight.
