Consumers thinking about signing up to a long-term fixed-rate mortgage deal should consider the product carefully, an industry expert has advised.
Moneyfacts analyst Lisa Taylor suggested that such proposals to offer such long-term products could help borrowers to maintain the level of their secured loan payments. However, she added that if the Bank of England's monetary policy committee (MPC) decides to lower the base rate of interest in the long-run then homeowners could be trapped with unnecessarily high mortgage costs.
Ms Taylor said: "Signing up to a long-term fixed-rate deal does offer peace of mind that your repayments will not increase over your given deal period. But it is also in effect a long-term gamble on rates. While you may feel smug as rates rise, if they drop you may be kicking yourself, especially if this persists over a long period of time".
The analyst also reported that by opting for such a secured loan product borrowers can help reduce the amount of money spent on fees associated with the house buying process. "Assuming today's average arrangement fee of 800 pounds, switching providers every couple of years could add on an extra 9,600 pounds to your mortgage in fees alone. You will also avoid having to pay exit fees, valuation and legal costs and it takes out the hassle factor of continually switching lenders", she claimed.
Ms Taylor added that although the base rate is "still quite low", changing economic cycles and a shift in government policy means that "a lot can happen in 25 or 30 years". Meanwhile, she claimed that those who supply long-term products "don't easily cope with lifestyle changes". The Moneyfacts analyst also claimed that if borrowers want to move home or opt out of the deal than they may be hit with high cancellation charges.
Her comments come after Alistair Darling, the new chancellor of the exchequer, recently announced that Labour is set to roll out proposals to increase the availability of long-term fixed-rate loan deals to help potential first-time buyers take their first steps on the property ladder. "This seems to be a rather sweeping solution to solve the massive affordability crisis", she suggested. The products were also stated to still make up for a minority of mortgage deals currently on the market.
Chris Crook, subsidiary managing director of Countryside Properties, asserted that: "Fixed-rate mortgages give buyers peace of mind but they do not usually give buyers the lowest starting rate in the market which is what first-time buyers really want". However, he claimed that such plans could "be extremely difficult to administer" suggesting that the government could look to introduce deferred payment terms or some form of subsidy for young buyers.
In June Louise Cuming, head of mortgages for moneysupermarket, suggested that those borrowers wishing to take out a fixed-rate deal should act as soon as possible. Her comments came as research from the price comparison website indicated that a number of lenders were reported to withdraw some of their products following the MPC's decision to increase the interest rate in May.
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