The announcement by Alistair Darling, the new Chancellor of the Exchequer, that he will encourage a rise in longer term fixed-rate mortgages has been met with enthusiasm by Yorkshire Building Society, who say they will soon have a long term product that they think will be popular with borrowers.
“One or two lenders have tried to offer ‘escape’ windows at 5 and 10 years from a 25 - year product but the take-up has been sporadic,” said Ian Corning, Chief Executive of the Yorkshire Building Society - he says he expects to “be in a position to make an announcement in the next few weeks,” about a new long term fixed rate solution.
According to a recent survey by the CML (Council of Mortgage Lenders), 89% of first-time-buyers and 73% of home-movers are opting for fixed-rate deals in May, up from 88% ad 72% in April, respectively, but with most deals only lasting for around 5 years, it is not a solution to the problem.
CML Director General Michael Coogan warns that although fixed term rates are good for budgeting, the financial shock of returning to the variable rate when the term is over can be crippling.
“Taking out short-term fixed-rate mortgages may provide some reassurance,” said Mr Coogan, “but eventually the loans will revert to a variable rate and the risk of a payment shock is real.”
This is why Yorkshire Building Society thinks a long term solution is so important; “the primary problem with terms longer than 10 years has been the level of early redemption charge that has to be applied to make the products economically viable,” says Mr Corning.
“We are currently working on a new proposal which will radically change the consumer’s view of longer term products,” he said
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