30 Year Fixed Rate Mortgages

by Mark Johnston

Housing minister, Grant Shapps has been trying to persuade lenders to offer long term fixed rate mortgages. He called for lenders to offer 30 year fixed rate loans in order to give borrowers more certainty in the current financial climate.Fixed rate mortgages do offer the certainty of knowing how much mortgage payments will be month after month, which is a great aid to budgeting. Although research has shown that consumers attach great weight to the introductory discount rate but little to the overall cost of a loan.

However budgeting is all very well but in today’s ever changing climate with a transient work force, births and divorces, some degree of flexibility is required. Long term fixed rates tend to be too inflexible for most people. Therefore the challenge for lenders, as always, would be to produce a cost effective very long term rate with flexibility built in

Peter Dockar, head of mortgages at HSBC stated that “this is not the first time the issue of long term fixed rates has been raised” and added that “we periodically offer 10 year fixed products, but they have only ever accounted for a very small percentage of our total sales”.

Long term fixes have been talked about at length over the last decade and some lenders did try long term product back in 2004, but these did not last long.

Head of mortgage policy for the building societies association (BSA), Paul Broadhead pointed out “long term fixed rate mortgages have been offered in the past but with limited consumer demand”.

Borrowers are now even more wary than ever on tying themselves in to long term deals as many who were on fixed deals when the interest rates dropped have now found themselves paying much more than they needed to.

The council of mortgage lenders (CML) published evidence that showed 1.8 million borrowers who have recently come off a fixed rate deal are on average paying £2,600 less each year.

Melanie Bien, mortgage expert at advisers Private Finance says “politicians argue that longer term fixes give stability to borrowers and the housing market but when borrowers do opt for fixes they prefer 2, 3 or 5 year deals. Fix for longer and there is usually a hefty early repayment charge to incur, which could run in to thousands”.

In a nutshell most brokers will advise their clients against the 30 year mortgage option, as who knows what will happen in their lives in 10 years never mind 30, and most lenders will never offer it

Whilst a healthy market undoubtedly needs a good mix of products, there are more important matters to concentrate on.

These long term fixed deals will not cure the issues in the property market; it will not mean more homes will be built and it will not help a workforce that may need to move where the jobs are.

The most pressing issue is getting first time buyers on the property ladder, not product selection.

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