In a speech delivered to the House of Commons, Chancellor Alistair Darling suggested that first-time buyers would benefit from being locked into long-term fixed rate deals.
However, Stroud & Swindon suggested that borrowers would be better off opting for a series of shorter term deals. Commenting on the findings, Paul Chafer, sales director at Stroud & Swindon, said: “While 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. This research shows that long-term fixed rate mortgages are not always the most cost-effective option.”
He added: “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 deal.”
Louise Cuming, head of mortgages at price comparison site Moneysupermarket.com, agreed that long-term fixed rate deals were not the solution.
She said: “Longer-term mortgages are very much ‘in vogue’ at the moment, but the early repayment charges applied to such products potentially have quite a sting in their tail. The trouble with committing to a long-term mortgage is people never know how their circumstances may change. If they have to exit quickly they may get a painful payment shock.”
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