The 25 Year Fixed Mortgage.

by Mark Johnston

                                  The 25 Year Fixed Mortgage.

In 2007, Nationwide building society launched a 25-year home loan with a fixed rate of 6.39 per cent for those with a 10 per cent deposit. However,  it appears that now borrowers have paid dearly for the perceived security of the mortgages.

David Hollingworth of London & Country, the mortgage broker, said the loans, which were heavily promoted by Gordon Brown, were “doomed from the start”. He also added that “these products were never what customers wanted”.

Manchester Building Society has recently launched a an extraordinary 25-year fixed rate mortgage deal on offer, effectively allowing a borrower to set their repayments for the entire lifetime of the mortgage.

The product is unique in the market at the moment, but is not the first of its kind. According to Moneyfacts there were a few 25-year fixed rate deals available four years ago.

The Building Society is offering borrowers a 25-year fixed rate of 5.24 per cent for an arrangement fee of £995 on a loan-to-value (LTV) of 80 per cent.

However there is strict criteria to meet in order to take this deal. Yoa borrower must be aged between 25 and 70 years old to apply and have a squeaky clean credit history. Income is also a factor,borrowers must have been employed for at least six months and be earning at least  £20,000 if they are applying as a single applicant.

 Also, Manchester Building Society will not lend to borrowers who are planning to buy a studio flat, a flat above commercial premises or a flat above four storeys. However, new-build properties will be considered.

The potential  property to be purchased must also be within England and Wales and must have a minimum value of £125,000.

The upsides to such a long term fix is that borreowers can budget on a more long-term basis, knowing that they will potentially never have to think about their mortgage again unless they move. But even then the mortgage is portable.

Also the longer the term it seems the better value borrowers get for the various costs such as the arrangement fee, valuation fee and exit fees, as these costs can be amortised over a longer period.

If the interest rates increase over the fixed rate period, borrowers are also protected from the rise and their payments will stay the same. But on the other hand if interest rates were to fall again, and there has been some talk of this happening, then the borrower will not benefit from this fall.

On the downside many commentators have cited that the Early Repayment Charges are a potential down fall on a fixed rate mortgage of this length.

In conclusion it is worth remembering that currently there are much cheaper tracker and shorter long-term fixed rates on the market. Tracker deals are incredibly cheap at the moment. That is because the base rate is still down at a record low of 0.5 per cent. What is more,the base rate does not look like moving anytime soon!



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