unintended consequences
This will allow more first-time buyers to get onto the property ladder, but could potentially have a knock-on effect.
“If first-time buyers could get a fixed rate, house prices would probably go up,” Donnell said.
“If you are a first-time buyer and are looking to buy a rental property, even for 4.5pc, [fixed-rate], compared to most of the cheaper parts of the UK, it’s cheaper to buy than to rent. It’s even more expensive in the south of England. ”
Andrew Wishart, senior real estate economist at Capital Economics, said long-term fixed-rate mortgages are causing problems in the U.S. market amid high median interest rates.
“In most cases, it will be much more expensive to repair something for 25 years than it is for two or five years,” he said.
“The obvious comparison is the US. Historically, the UK has had more variable rate mortgages, but now we have shorter two-year and five-year fixed rate mortgages.
“The big thing we saw in the US is interest rates went up to 7% where everyone has a 30-year mortgage.”
He added that the number of homes for sale has “reduced to an all-time low” as most long-term mortgages cannot be transferred to other properties.
First Direct is currently offering 10-year fixed rate deals as low as 3.99% with a loan-to-value of 60%. Prenna and Kensington, on the other hand, offer fixed rate deals for the entire term of the mortgage.
Perenna’s 25-year fixed offer is 5.75% with a 90% loan-to-value, while Kensington’s is 5.6% with a 60% loan-to-value.
The government has previously expressed interest in lengthening mortgage terms. Michael Gove proposed introducing longer fixed terms in the summer, when his ministers were also reportedly considering Dutch-style 40-year terms.