The Government has announced a move to increase the affordability of long-term fixed-rate mortgages, but borrowers are being warned to approach with caution.
In the pre-Budget report on Tuesday, Chancellor Alistair Darling said measures to help lenders provide more fixed loans of 10 years or over would be put forward in next year's Budget.
While these deals would provide the certainty that monthly repayments will be set for a long period, offering protection against rising interest rates, most borrowers go for a fix that lasts two, three or five years.
"It is important to understand the risks of locking into any financial product for such a long time," said Louise Cuming from price- comparison service Moneysupermarket. "Many of these mortgages can carry punitive charges for early repayment. If a borrower's circumstances change, and they have to come out of a deal, it can cost them dearly. Without a crystal ball, any fix longer than five years is risky territory."
Melanie Bien at broker Savills Private Finance said the move was "the Chancellor's favourite solution for dealing with uncertainty in the housing market".
She added: "While the cost of longer-term fixes has fallen, these rates are still at a premium to short-term fixed deals."Reuse content