Mortgage News Borrowers Take Refuge In Long Term Fixed Rate Mortgage Deals 1971
Borrowers take refuge in long-term fixed rate mortgage deals
28 July 2008 / by Daniela Gieseler
The financial comparison website’s figures show that the number of mortgage deals with terms of 120 months or more has risen from eight per cent this time last year to 15 per cent.
The number of 25-year fixed rate deals has also doubled over the past year, with 18 different products available as opposed to a mere nine in the last year. This increase is strikingly contrary to the overall trend of the mortgage market which has shrunk dramatically by 41 per cent (647 products).
With consumer confidence levels dropping as fast as the number of available mortgage products, many borrowers feel threatened by the recent interest rate rises and take refuge in long-term fixed rate offers which will spare them unexpected rate hikes.
According to MoneyExpert.com the average initial rate payable on a 25-year fixed rate mortgage is 0.3 per cent lower than the current market average of 6.9 per cent, while the average rate for the duration of the deal is 6.67 per cent.
Sean Gardner, director of MoneyExpert.com, comments: “The credit crunch has prompted a flight to safety by borrowers who have been stung by dramatic rises in the rates on short-term deals. At the same time lenders are increasingly keen on signing customers up to long-term deals which offer them certainty.
“Long term fixed rate mortgages are no longer an oddity. And with competitive rates of interest in some circumstances they may well be worth considering,” he says. The website’s analysis shows that 137 out of 921 fixed rate products currently on the market are long term deals.
However, there are also some cons: “Early redemption charges on long term deals tend to be more substantial than shorter fixed term mortgages. In some instances you can be hit with a charge of 13 per cent of the value of your loan – which on a £150,000 mortgage would mean paying £19,500 to get out of the deal.”
Mr Gardner adds: “A rate of 6.5 per cent is not prohibitive and could prove to be a worthwhile long term strategy if you don’t mind accepting the risk that at some point you’re likely to be paying over the odds. Interest rates will eventually go down and that’s when people on fixed deals feel hard done by.”
Newcastle Building Society has meanwhile announced the launch of three mid to long-term fixed rate products, which have been ranked best fixed rate mortgages by comparison website moneysupermarket.com.
All products allow a maximum loan-to-value of 75 per cent on mortgage loans between £15,000 and £500,000, and offer interest rates of 6.05 per cent on a three-year term and 5.95 per cent on a five and ten-year term.
Steven Marks, Lending and Operations Executive at Newcastle Building Society, said: “We are delighted to announce the launch of the Society’s new mortgage product offering. With a plethora of best buy deals available, borrowers have a healthy selection of products to choose from, especially in such difficult market conditions.”
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