Jonathan Cornell, technical director at Hamptons Mortgages, commented: “Whilst I am sure the new chancellor means well, I think he is flogging a dead horse. Professor Miles spent a long time investigating long term fixed rates and despite brave attempts from a couple of lenders very few long-term fixed rates were sold. I do not believe that the only reason why brokers sell short-term rates is to maintain their opportunity to remortgage clients in a couple of years.
“All long-term fixed rates have long-term early repayment charge periods and, as we know, our lives may change significantly over a 5, 10, 15, 20 and especially a 25 year period. In my experience these penalties discourage clients from taking out long term fixed rates.
“In the US, which is often used as an example of somewhere where fixed rates are very popular, these long-term fixed rates do not have early repayment charges, enabling borrowers to remortgage or repay their loan at any time without being penalised.
“Considering the long term fixed rates which are currently available I believe many are unsuitable for the vast majority of borrowers. How many of us can guarantee that we will not divorce, split up, suffer bereavement, lose our job, relocate aboard, decide to rent or change our job within the next 25 years? We are often told that long term fixed rates are portable but if a borrower changes jobs and become self employed then they may not be able to take out the same loan, in which case they would have to pay a penalty and then take out a mortgage with a new lender.
“The chancellor mentions the fact that some mortgage providers are charging arrangement fees of thousands of pounds but it is only borrowers who need to borrow substantial sums of money who will be paying this. The vast majority of lenders offer many different rate and fee packages allowing borrowers with smaller mortgages to take advantage of rates with no arrangement fees as well as a free survey and conveyancing for remortgages.
“If 25-year fixed rates are to increase in number they will be entering arguably the most competitive mortgage market in the world and will have to offer significant benefits over their often more appealing short-term counterparts.”
Iain Cornish, chief executive of the Yorkshire Building Society, said: “The issue up to now is that there has been little demand for terms as long as 25 years but there are signs that the British public are weaning themselves off the need to change lender every two or three years. Sales of five and 10 year fixed rates have increased dramatically over the last 12 months but the primary problem with terms longer than 10 years has been the level of early redemption charge that has to be applied to make the products economically viable.
“One or two lenders have tried to offer ‘escape’ windows at 5 and 10 years from a 25 - year product but the take-up has been sporadic.
“We are currently working on a new proposal which will radically change the consumer’s view of longer term products and we expect to be in a position to make an announcement in the next few weeks.”
Kent Reliance Building Society chief executive, Mike Lazenby, also welcomed the proposals: "Whereas other lenders, like Nationwide, have launched and subsequently withdrawn 25-year fixed rate mortgages, Kent Reliance believes strongly that long term fixes allow house buyers to plan without the uncertainty and worry that rates and payments can rise dramatically, two or three years down the line."
"Darling says: 'Brokers want customers to come back every two years, rather than every 10 or 20. The Financial Services Authority has identified this as a problem.' He also accuses brokers of having inbuilt incentives to advise those seeking a home loan to take short-term products. He says the government thinks long-term fixes are the answer to thousands of households who face rate hikes this summer as their cheap short-term rates end."
Lazenby confirmed that brokers were reluctant to sell fixed rate mortgages with terms of even five or ten years, never mind 25, in spite of the fact that these have often been cheaper than two and three year fixed term loans.
He said: "Kent Reliance's long-term fixed rate loans are entirely portable, which means that even if you move after five years, you can take the mortgage with you and continue to pay the same low rate for the 20 years remaining of the original term. Unfortunately some brokers prefer to resell new mortgages every two or three years and even when the borrowers don't pay a fee, they pay indirectly as the lender will pay the broker and pass on the costs."
