We shall not be moved: the loans that last a generation

As the Chancellor talks up 25-year fixes, Julian Knight asks if the immunity to rate movements is outweighed by the inflexibility of long deals

It's official: the Government wants us to take out more 25- year fixed-rate mort- gages. Chancellor Alistair Darling used Wednesday's Budget to put the case for fixes from 10 to 25 years, and announced a review to see how more of us could be persuaded to sign up.

But we have been here before. In 2004 Professor David Miles published a review for the Government, in which he called for far more long-term fixed-rate mortgages. In continental Europe, fixes reduce household sensitivity to interest rate moves and help avoid "boom and bust" economics.

But despite the political backing, these long-term deals still account for only a tiny percentage of the mortgage market.

"This issue keeps rearing its head but nothing seems to happen," says David Hollingworth at broker London & Country. "The old problems persist with long-term mortgages: a lack of flexibility and very high charges for early repayment."

Take Kent Reliance's 25- year mortgage. While its headline rate is a competitive 5.5 per cent, if a borrower wants to move away at any time, they have to pay a redemption penalty equivalent to 3 per cent of the loan. On a £200,000 deal, that works out at £6,000.

"The difficulty arises when people look to move home. They may need to borrow more money and their lender may not want to advance them more cash. Under such circumstances, they could be faced with losing their dream home or remortgaging and paying a hefty repayment penalty," adds Mr Hollingworth.

Some providers, though, are at least trying to offer a fixed long-term rate while at the same time loosening customer tie-ins. The Manchester building society, for instance, has no early repayment penalty and instead levies a high upfront arrangement fee, equivalent to 2 per cent of the loan. But customers will get a big part of this fee refunded if they stay with the lender for at least 10 years.

The rates for these deals have also improved in the past few years. When the Miles review was published, the premium for long-term fixes was sometimes as much as one and a half percentage points. Nowadays, they are much closer in price to the market-leading two- and five-year deals.

Nevertheless, customers don't seem ready to take the long view. "People are happy to fix for two or five, maybe even 10 years, but 25 years is a long time – who knows where they will be or what they will be doing?" asks Melanie Bien at broker Savills Private Finance. "It's all very good the Chancellor saying we should have more 25-year fixes, but if people don't want them, the market won't supply them."

However, critics say brokers dislike long-term fixes because, if they take off, fewer people will use their services to remortgage.

"Undoubtedly, some are reluctant to recommend long term, but the rules say they are supposed to do what's best for the client," says Ray Boulger from broking firm Charcol.

"Generally, though, brokers and their clients don't think it's a good idea to fix for so long. Two years at what turns out to be an uncompetitive rate doesn't do too much damage, but with a long-term fix you either have to stick with it or pay a redemption charge."

Rather mischievously, Mr Boulger adds that the newly nationalised Northern Rock could hold the key to realising the Government's vision. "The Rock was a leading light in this market but has become very uncompetitive, charging 6.69 per cent on a 15-year fix. If the Chancellor is so keen on this market, perhaps he ought to start the reforms closer to home."

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions