Sky News asked three mortgage experts whether long-term fixed rate deals could be on the horizon after shadow chancellor Rachel Reeves’ plans were revealed at the weekend.
Tuesday 23 January 2024 03:19, UK
Labor has promised to “revolutionize” the mortgage market and open the door to 25-year fixed rate mortgages for millions of homeowners.
Shadow Chancellor outlines plans for the weekend rachel reeves He said long-term, fixed-rate deals would allow people to buy homes with smaller down payments and lower monthly payments.
Long-term mortgages are common in countries such as the United States, Canada, and Japan, but not in some countries. labor We are not proposing that taxpayers take on the burden.
Mr Reeves called on those involved in implementing Labour’s financial services review to work with the mortgage industry to find ways to remove regulatory barriers and spark broader cultural change.
Sky News” money The team asked three industry experts if it could take off.
Money Latest: Britain’s ‘dogflation’ problem. Should I pay off my student loans?
Will they succeed?
Richard Donnell, Head of Insights at Zoopla, told Sky News it was a “good idea” but the challenge was to ensure interest rates were as competitive as short-term deals, otherwise people would be more aggressive. He said he would not try to take advantage of it.
He said the main benefit is for first-time buyers.
“Currently, the cost of mortgages and rentals is the same even with mortgage rates of 4.5%, but new borrowers are being put to the test of whether they can afford interest rates of 8% to 9%. ” he says.
The risk of high mortgage repayments is making it difficult for buyers, especially first-time buyers, to get on the ladder. Rents are also rising and people have less savings as they struggle to get mortgages. Coupled with historically high housing prices, first time buyer Realizing that larger deposits need to be put aside.
“The benefit of a long-term fix is that it probably avoids the need to test affordability,” Donnell says.
“This is a big change in thinking and I think the government needs to consider how it can support the long-term rates market to develop with rates that support demand for these types of products. ”
Are mortgages across England dire?
Do the British really want to be locked in?
Kevin Roberts, managing director of Legal & General Mortgage Services, is not satisfied with the current situation.
“Although the 25-year fix is already available in the UK, it is worth noting that the interest rate is relatively low. Typically people tend to choose the product that offers the lowest interest rate at the time. , it’s usually a short-term product, like a two-year or five-year fix,” he said.
L&C director David Hollingworth agrees.
“This space has the potential to grow, but until pricing and partnerships are ironed out, it may remain a useful niche option rather than a market-wide option,” he said.
Two other major drawbacks
Hollingworth highlights another issue.
“Long-term fixed deals often impose early repayment fees on the borrower throughout the fixed rate period,” he said.
So if you need to review your mortgage at some point, perhaps because someone wants to move, your options are even more limited.
“Even if a deal for a new property closes, there is no guarantee that the borrower will meet the lender’s criteria at the time or that the lender will have a competitive interest rate on additional borrowing. ”
Perhaps more obviously, there are also fears that interest rates will fall significantly, as happened after the 2008 financial crisis. economic crisis.
“If interest rates subsequently fall, there may be concerns that they will remain high,” Hollingworth said.
read more:
More financial institutions are lowering interest rates, and the number of mortgage loan approvals is increasing.
Mortgage: “In 2024, the number of delinquent households will increase and loans will decrease”
NatWest boss, who earns £764,000 a year, says buying a house is ‘not that difficult’
Mortgage statistics reflect falling interest rates
What is already on the market?
The most common long-term fix is 10 years. First Direct currently offers a fixed rate of 3.99% over 10 years on a 60% loan-to-value home loan.
Perenna is a new lender targeting the long-term market, offering fixed interest rates for up to 40 years, but only locking in borrowers for the first five years. Currently, she is offering a 25 year mortgage at 5.75%.
Perhaps aware of the early repayment charge (ERC) issue highlighted above, Kensington Home Loans offers a fixed interest rate for the life of the mortgage, and while the ERC exists, there are Exemptions apply in certain circumstances.
Who will they benefit?
As mentioned above, first-time buyers are having a hard time getting on the ladder, but so are those looking for long-term certainty and perhaps not intending to transition.
“For example, if you’re saving for a wedding in X years’ time, it might be useful to know how much you can save each month if you continue to pay off your mortgage, which is likely to be your biggest expense.” No, it’s the same,” says Kevin Roberts of L&G.