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Long Term Fixed Rate Mortgages

It is interesting that Mr Darling keeps banging on about long term fixed rates without actually demonstrating a full understanding of the mortgage market and indeed human nature.

Even though there has been a credit crunch there is actually a plethora of long term fixes, i.e. rates that are fixed for seven years or longer available. The problem is twofold – the funding that the lenders can obtain, especially in todays post credit crunch environment, and good old human nature.

The products that are available from lenders have to be priced at a realistic level, one that ensures lenders are not giving money away and one that reflects the current money market conditions. This means that longer term rates are by their nature more expensive than say, two year fixed rates. Human nature often dictates that when faced with a choice of products, clients will often plump for the option that is the cheapest, especially when they know they can remortgage easily to another product once this offer has expired.

The other issue is in the length of time many of the longer term products tie you in for and, arguably, this is the main area where there may be some room to manoeuvre by lenders.

As peoples lifestyles become ever more changeable many clients do not wish to be tied in to one product and one lender for a long length of time. A higher divorce rate and the changing nature of relationships, increasing job diversity, out of town migration, there are many reasons that contribute to a much more flexible way of living and people hate to be tied down.

In terms of timing the chancellors latest comments come in a falling interest rate environment so unless a client is generally risk adverse, has a very strict budget or is committed to staying in their home for a long time and maybe coming to the last ten or fifteen years of their mortgage, it is arguably going to be more advantageous to look at long term tracker products that will reduce as rates fall and often are more flexible.

If the public did have a real demand for these products then quite simply lenders would react and produce more. The issue lies in changing the attitudes of the modern day British public which is not so easy.

In reality long term products in many different shapes and sizes already exist, the demand however, at the level the chancellor would like, does not.


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