Long term fixed rate mortgages should be the norm, says Darling

11 February 2008 / by Verity G
Mortgages which are fixed for twenty-five years will become commonplace according to Alistair Darling's latest speech on the continued UK housing market crisis.

Speaking on the evening before the Bank of England cut interest rates by 0.25 per cent, the Chancellor announced plans to shake-up the home loan market, which includes encouraging loan providers to offer longer term fixed-rate mortgage deals and offering banks' funding towards homeowner loans.

Since the credit crunch, mortgage lenders have struggled to offer competitive rates to borrowers but under the new proposals, it is hoped that there will be renewed investor confidence in the UK's battered bonds and mortgage-backed securities market.

The UK's 11.8 million mortgage holders, many of whom have opted for the safety of a fixed rate mortgage, are preparing for challenging times ahead as the competitive low fixed rate deals taken out two years ago come to an end. And with few longer term fixed-rate mortgages on the market, mortgage owners are concerned that they will now be stuck with high interest rate deals.

However, under the new plans, Darling hopes that lenders will launch a number of 25 year fixed-rate mortgage deals in order to provide home buyers with more security.

Mr Darling also said he plans on reducing early settlement penalties, adding that low income households in particular would benefit and it "made real sense" to fix the level of mortgage repayments for several years. According to the latest figures, around 65 per cent of mortgages are taken out at fixed rates, but most only last for two, three or five years.

Kent Reliance, Manchester Building Society, the Co-op, Cheshire Building Society and Norwich and Peterborough currently offer 25 year fixed-rate deals while Nationwide allows homeowners to fix their mortgage at 5.98 per cent until 2033. The hope is that other lenders also decide to introduce similar offers.

The proposals, which are not the first fixed-rate solutions proffered by the Government, are likely to hit a chord with many UK home owners who are anticipating a housing slump. However, the Chancellor reassured mortgage holders that despite the recent fall in house prices, the UK will weather the storm.

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