Long-term fixed rates risky, stupid and dangerous.

Mr Darling, The Chancellor of the Exchequer, gave his first Budget yesterday. There was not a lot in it for home-owners in particular, with no reduction in Stamp Duty for first time buyers, or otherwise. However he did state that he would like mortgage lenders to offer Long-term fixed rate mortgages.

I believe he is living in cloud cuckoo-land, as long term fixed rate mortgages will never catch on. He fails to understand that people will not commit to a long term deal which could potentially harm them in the short, medium and long term. Long term deals are potentially risky for borrowers who could be stuck in expensive deals when interest rates are falling or have to pay high redemption penalties to move house.

Currently, there are just six (out of 90) lenders who offer fixed rates for 25 years or more despite the Chancellor of the Exchequers repeated call for more long-term deals to be offered.

Mr Darling launched a Treasury consultation on long-term fixed rate mortgages which will report back in the autumn. Iin his Budget speech he said “more people should have the chance” to take out long-term fixed deals." Cloud cuckoo land is just being delayed.

Figures show lenders with 25-year deals direct to the public include Norwich & Peterborough,, Kent Reliance, Nationwide, Co-Operative Bank, Cheshire and Manchester which also offers a 30-year deal. Homebuyers in the Chancellor’s own Edinburgh constituency can only choose from four lenders as Kent Reliance and Norwich & Peterborough do not offer loans in Scotland.

I say "Certainty about monthly mortgage payments may be a good thing but borrowers should think very carefully before committing to 25-year fixed rates or any product longer than 5 years. Take Independent Mortgage Advice. The risks are clear. Not only could borrowers end up locked at a higher rate when interest rates are falling but could also find themselves having to pay redemption penalties if they want to move house. Remember that the average person stays in a house for under 7 years. It is virtually certain that people’s circumstances will change several times over a 25-year period. It will be interesting to see what comes out of the Treasury review as all the evidence so far is that the mortgage industry does not appear to share Mr Darling's ambition for such long-term fixed-rate deals. Analysis shows rates on 25-year fixed deals available direct to the public currently range from 5.5% to 6.58%. Best rates for two-year deals range from 4.75% to 5.50%. Who would commit to a higher than necessary deal than they need to. Market forces will dictate what products are avaliable to borrowers.

A suggestion to the Chancellor : As you now own Northern Rock bank, why not force them to only offer long term fixed products? Use the 'People's Bank' to see if the people take up such products. After all, if you believe long-term fixed rates are so good, your 'People's Bank' will attract so many customers that it's return to private ownership will be assured, relieving you of the burden that nationalisation of Northern Rock has cost the tax-paying public (who are also borrowers).

Mr Darling, enjoy your time in the limelight whilst you can. You will be voted out at the next General Election if you carry on with such nonsense as you delivered yesterday."

Number of 100% mortgages still reducing, and help with repossessions

As a further sign of the tightening of the lending criteria, it is interesting to see that just 9 lenders now offer 100% mortgages. Six months ago, there were 22 lenders offering 100% products compared to just nine now in England. The number of products on offer has fallen from 162 to just 39. In Scotland only 7 lenders will sell 100% mortgages.

The lowest rates on offer in October were around 5.99% – now they are 6.14% despite the Bank of England cutting the base rate twice since then. Typical arrangement and associated fees were found to have risen from £4,954 to £5,134.

Although lenders have given up on 125% mortgages but there is still life in the 100% mortgage market albeit with higher rates and fees as companies price for risk. As always, the risk reflects the rate.


And as a follow on, when the nasty stuff happens, I can continue helping....

Mortgage Advisers believe they have a key role to play in helping to bring down arrears and possessions levels, by providing advice and counselling to borrowers, and helping them liaise with their lender, according to the Intermediary Mortgage Lenders Association (IMLA).

Almost half (48%) of brokers surveyed said intermediaries can support borrowers in difficulty – although a significant minority of 38% said their role was not to help borrowers manage arrears. The remaining 14% did not express a view.

Brokers said they needed early notification of an arrears problem by the lender – mentioned by 57% of respondents. A small percentage (9%) argued lenders should pay fees to brokers for arrears counselling.

IMLAs executive director commented: “Many, but not all, intermediaries are keen to play a more proactive role in supporting borrowers who may get into financial difficulty, seeing this as an integral part of the service they provide their customers over the long term. They are able to provide a higher level of expertise and independent advice to borrowers than they could find elsewhere.”

If you have a problem paying your mortgage, or know someone who is having problems, please feel free to contact me and I'll do all I can to assist in such matters. After all, the service I offer is from end-to-end, warts and all !