Industry reacts with hostility to Shapps' call for long-term fixes

24 October 2011 | By Natalie Thomas

Speaking at the Building Societies Association’s mortgage seminar in London last week, Shapps told dele gates that longer-term products would ensure borrowers knew where they stood.

He said: “In today’s uncertain world, people want to know where they stand. Yet when it comes to buying a home, there are no mortgages available where they can fix their payments for a long time the longest fixed rate mortgage for many is five years.

“Longer-term mortgages, possibly as long as 30 years, could help families on tight budgets know where they stand when they are buying a home, by giving them greater certainty about how much they will be paying on the mortgage in years to come.”

Brokers hit out at the idea on Mortgage Strategy Online.

One broker comments: “Is this man for real? There is a reason why there has never been a strong market in long-term fixed rates people don’t want to pay the long-term rates and heavy early repayment charges and are nervous of predicting what life holds in store for them over the next two years, let alone 30.”

The announcement also received a lukewarm response from trade bodies.

The Council of Mortgage Lenders says research it published in December 2007 showed that deals of this kind are unattractive to borrowers.

A spokesman for the CML says one option would be to factor in a prepayment to the headline rate so that exit fees are minimised.

But it says this would typically add at least 0.5% to the headline mortgage rate and there is little evidence consumers are prepared to pay such a premium for the certainty that a long-term fixed product would provide.

Paul Broadhead, head of mortgage policy for the BSA, adds: “Longer-term fixed rates have been offered in the past but with limited consumer demand.”

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