In the Chancellor's Budget speech in April (see Budget Review 1993), Gordon Brown announced plans to investigate the possibility of long term fixed rate mortgages. The idea being that if somebody was on say a 25 year fixed rate deal it would bring stability to their cashflow as well stability in the property market and ultimately to the economy.
The Government also plans some form of tax incentive for taking out such a mortgage. A survey by London & County Mortgages has found that two thirds of mortgage brokers liked the idea of long term fixed rate mortgages but thought the rate of interest may to too high and that early redemption penalties could also be the same.
Our view
The concept is good. More research is needed as to the impact of the same and how competitive could providers make such contracts. Long term fixed rate mortgages are popular in the US and whilst there is property stability in the US, there market is very different to the UK and others things such as land availability as far greater.
In addition, will providers really want to commit to offering such terms? Any lender, bank or building Society requires competitve edge to make at least some money and to keep trading. Locking in to a longer term contract will restrict this.
In our opinion, long term fixed rate mortgages are anti-competitive and will suppress the property market. Perhaps this is really what the Chancellor wants?
Wait and see what the tax incentives are.
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