Penalty-free, long-term fixed rate mortgages will need to be priced more competitively if they are to become an attractive proposition, warns The MarketPlace at Bradford and Bingley.
Responding to plans announced this week that 25 to 30-year US-style fixed rate deals could soon be available to European borrowers without any redemption charges, David Bitner, head of product operations at The MarketPlace, says: “This is an exciting concept, were it not for the proposed interest rates of 6.5-7%. With short-term discount and tracker deals in the UK at around 3.5% and short-term fix rates at between 4% and 5%, long-term rates pitched at around 7% would be unappealing for the majority of borrowers.
“The chancellor favours a move towards longer term fixed rates so the economy can be controlled by the use of interest rates without risking boom or bust in the property market. However, until a way can be found to price these products with more attractive rates and no penalties, any plans to make these the product of choice in the UK mortgage market are doomed.”
Bitner estimates that a client looking to borrow £100,000 on a repayment basis over 25 years on a fixed rate of 7% for the life of the loan would be paying £706.78 per month, compared to a life time tracker at 0.5% above the Bank base rate where they would be paying £541.74 per month.