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29 October 2007
Over recent weeks the Chancellor of the Exchequer has been pushing for lenders in the UK to increase availability for longer term fixed rate mortgages.
Fixed rates have traditionally been around two, three, or five years in the past, and consumers have enjoyed stable repayments for the period of the fixed term.
However, the Chancellor has been pushing for longer fixed rates up to the whole term of the mortgage to increase stability further for those that may face difficulties when it comes to variable repayments.
Mr Darling has reiterated the need for more longer term fixed rate deals in the recent pre-budget report, and following his call for such deals a number of lenders have introduced long term fixed rates from ten years upwards. This means that customers would be able to continue making the same repayment every month for the duration of the fixed term no matter what happens with interest rates.
The availability of fixed rate terms has risen over the past five years – industry experts state that there were just twenty longer term fixed rate deals available five years ago but there are now nearly two hundred such deals on offer.
However, according to industry professionals most consumers are not keen to take out these longer term mortgage loans, and prefer to take out fixed rates on a shorter term.
It is thought that many are nervous about tying themselves in on a particular interest rate for such a long period because interest rates could fall over such a long period of time, which means that they would be stuck with higher repayments or may face hefty penalties for switching back to a variable rate or lower fixed rate mortgage.
One official stated: 'Two-year deals remain by far the most popular. We hardly get any interest in deals of 10 years or more, even though the rates aren't bad. I think borrowers just don't like thinking that far ahead.' Another added: 'Long-term fixed-rates are not popular. They are a niche product.' One broker also stated: 'Long-term fixed rates will never work because they are against the customer psyche. They don't want to be tied into a lender any more than they want to be tied into a gas supplier.'
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