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The Director of Mortgage Beaters, Roy Bookman, knows what's going on in the ever-changing world of mortgages. So what's new, Roy?
“The Government’s long-term fixation”
Monday, 18 February 2008
With Mr Darling’s first budget fast looming on the horizon he is once again expounding the virtues of long-term fixed-rate mortgages inspite of the apathy felt by most borrowers towards them. Gordon Brown was convinced by Professor David Miles that such loans – popular in the United States and in Europe – are the key to housing market stability. Now Alistair Darling is expected offer help to lenders to encourage “more people to fix their mortgages as a matter of routine”.
“For many households, particularly those on low incomes”, said Mr Darling “fixing the level of mortgage repayments for several years makes real sense and it can also contribute to wider macroecnomic stability.”
Whilst few can fault the concept the problem remains that fixing a mortgage for any term over 3 years is a huge gamble. Who can say what is going to happen over that time- to interest rates and, more importantly, to you especially if you are a first time buyer? You could get married, divorced, have children, suffer a long-term illness, lose your job, change job , decide to go and live abroad, in short almost anything can happen and if you are in a fixed rate mortgage for 25 years which Mr Darling would like you to be your lender is going to charge you a punitive exit fee for escaping from this arrangement.
Over 20 lenders, including Abbey and Halifax, now offer loans with fixed-rate terms of ten years or more, but most homeowners fix for two. This is partly because the shorter term products usually offer better rates and homeowners realise, unlike the Government, that their circumstances are likely to change over anything longer than two years.
It is anticipated that the reforms likely to be introduced in Mr Darling’s Budget will make it easier for lenders to finance long-term fixes through covered bonds. This should mean that rates will be better than they have been in the past, but in a climate where the cost of borrowing in a year’s time is predicted to be heading towards 4 per cent who in their right mind would want to take out a fixed rate mortgage for 25 years?
“For many households, particularly those on low incomes”, said Mr Darling “fixing the level of mortgage repayments for several years makes real sense and it can also contribute to wider macroecnomic stability.”
Whilst few can fault the concept the problem remains that fixing a mortgage for any term over 3 years is a huge gamble. Who can say what is going to happen over that time- to interest rates and, more importantly, to you especially if you are a first time buyer? You could get married, divorced, have children, suffer a long-term illness, lose your job, change job , decide to go and live abroad, in short almost anything can happen and if you are in a fixed rate mortgage for 25 years which Mr Darling would like you to be your lender is going to charge you a punitive exit fee for escaping from this arrangement.
Over 20 lenders, including Abbey and Halifax, now offer loans with fixed-rate terms of ten years or more, but most homeowners fix for two. This is partly because the shorter term products usually offer better rates and homeowners realise, unlike the Government, that their circumstances are likely to change over anything longer than two years.
It is anticipated that the reforms likely to be introduced in Mr Darling’s Budget will make it easier for lenders to finance long-term fixes through covered bonds. This should mean that rates will be better than they have been in the past, but in a climate where the cost of borrowing in a year’s time is predicted to be heading towards 4 per cent who in their right mind would want to take out a fixed rate mortgage for 25 years?
# posted by Roy Bookman : 12:17
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