Housing minister calls for 25-year fixed mortgages
Housing minister Grant Shapps has urged lenders to consider offering fixed-rate mortgages of up to 25 years.
Speaking at the Building Societies Association's Annual Mortgage Seminar last night, Shapps suggested that lenders should follow the lead of Germany and Scandinavia by offering truly long-term fixed-rate mortgages.
"Of course, there are going to be costs and benefits for consumers to weigh up, and long-term fixes won't be for everyone," he said. "For some, though, the peace of mind of knowing exactly how much they'll have going out of their account each month could be what gives them the confidence to buy."
The minister also stated that he believes that 'portable' deals – where you are able to move house and keep your existing mortgage – and 'cap and collar' arrangements, where the interest rate on your loan can only move within set limits, would help make longer-term fixes appealing to borrowers.
However, experts are speculative as to whether consumers want long-term deals. "Longer-term fixed-rate mortgages have been offered in the past but with limited consumer demand," says Paul Broadhead, head of mortgage policy for the Building Societies Association. "Ten-year rates are currently available and lenders do respond with new products where demand exists."
Yorkshire Building Society, which currently offers a 10-year fixed-rate mortgage at 4.19%, also says demand is low for long-term fixes. "The Yorkshire has offered 25-year fixed-rate mortgages in the past but these had a very small take-up rate," says Chris Smith, Yorkshire's group direct mortgage manager. "One of the challenges of offering very long-term mortgages is balancing the length and security these give to the borrower with flexibility should their needs or circumstances change."
But it seems attitudes are changing. The Yorkshire says its 10-year fixed mortgage is growing in popularity. And Chelsea Building Society recently offered a 5, 6, 7 mortgage where borrowers could choose to fix for five, six or seven years – the majority went for the latter. So maybe in the future Britain will move to a more continental system of long-term fixed-rate mortgages.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.