Homeowners avoid long-term mortgages

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by Kay Murchie

Homebuyers are rejecting long-term fixed-rate mortgages despite the Government insisting that these deals will help to generate a more stable property market and would be ideal for stretched borrowers.

Chancellor Alistair Darling reiterated the Government’s wish to see more long-term deals in last week’s Pre-Budget Report. There are quite a lot of long-term deals with good interest rates but borrowers aren’t interested.

There are 190 fixed-rate deals with rates guaranteed for over a decade according to Moneyfacts. There were just 20 five years ago. However, borrowers are put off by exit fees costing thousands of pounds. Furthermore, the fixed rates leave no flexibility for lifestyle changes such as a marriage split.

One advantage is that they avoid the increasingly high costs of remortgaging every couple of years. In comparison, 2-year deals are often cheaper and offer more flexibility.

A spokesperson for mortgage broker, London & Country, said that the most popular are the 2-year fixed deals. Deals of 10 years or more do not generate any interest nowadays despite the rates being quite good. Furthermore, borrowers don’t like to think that far in advance.

A 25-year fixed-rate of 6.34% (£865 a month on a £130,000 repayment mortgage) is available at the Nationwide Building Society. A spokesperson for the society claims the 25-year deal is becoming popular.

A spokesperson for the broker, Mortgageforce, explained that long-term fixed rates will never work because they are against the customer psyche. Some homeowners do not want to be attached to a lender for that long.