Long-term mortgages receive support

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by Kay Murchie

In last month’s budget, Chancellor Alistair Darling criticised the present shorter-term mortgage deals on offer and wants to encourage 25 year fixed rate mortgages.

In his pre-Budget speech, Mr Darling said that he wants people to have the choice of long term fixed rate mortgages because they protect borrowers from risks and still allow them flexibility to move, or get a new mortgage if rates go down.

Mr Darling added most UK homeowners have short-term fixed rates of two or three years, which are leaving them exposed to interest rate rises when their mortgage deal ends.

Research from Fair Investment Company (FIC) has established that 37% of people would opt for a 25 year fixed rate mortgages while a further 28% would opt for a medium term fixed rate deal.

James Caldwell of FIC said the fact that the majority of people would go for a long or medium term fixed rate mortgage is reflective of the country’s nervousness regarding the current economy and the credit squeeze.

At the moment, households are suffering from soaring mortgage repayments as their fixed rate deals expire. Some might even lose their homes because they cannot keep up with the payments, added Mr Caldwell.

However, the research established that some people said a short-term deal is right for them, preferring to take their chances with the Bank of England base rate. Some 25% of respondents said that they would go for a short-term fixed rate while just 6% said that they would not choose a fixed-rate mortgage at all.

If the base rate keeps falling then those who opted not to fix the interest rate on their mortgage will be better off as their mortgage repayments should go down while those on a fixed rate won’t benefit.

However, if the rate goes up, then those same people could find themselves faced with higher repayments while the more cautious people who opted for a fixed rate deal are protected from such fluctuations in the economy, concluded Mr Caldwell.