BUDGET 2008: mform warns of long-term fixed risks

The government’s renewed pledge to encourage more borrowers into long term fixed rates could lead to them taking up expensive deals with high ERCs.

The chancellor Alistair Darling called for more choice when it comes to long-term fixed rates for borrowers in today’s Budget.

Currently six out of 90 lenders offer fixed rates for 25 years or more.

Lenders with 25-year deals direct to the public include Norwich & Peterborough, Kent Reliance, Nationwide, Co-operative Bank, Cheshire and Manchester that also offers a 30-year deal.

But Francis Ghiloni, marketing and business development director at mform.co.uk, says: “Certainty about monthly mortgage payments may be a good thing but borrowers should think very carefully before committing to 25-year fixed rates.

“The risks are clear. Not only could borrowers end up locked at a higher rate when interest rates are falling but could also find themselves having to pay redemption penalties if they want to move house. It is virtually certain that people’s circumstances will change several times over a 25-year period.

“It will be interesting to see what comes out of the Treasury review as all the evidence so far is that the mortgage industry does not appear to share his ambition for such long-term fixed-rate deals.”

Mform.co.uk’s analysis shows rates on 25-year fixed deals available direct to the public currently range from 5.5% to 6.58%.

Best rates for two-year deals range from 4.75% to 5.50%.