The Chancellor's decision in the Budget to reduce volatility in the housing market by promoting long-term fixed-rate mortgages has been much criticised.
"Borrowers don't like being locked in by redemption penalties for long periods because you never know what's round the corner," says David Hollingworth at mortgage broker London & Country. "Anyone unexpectedly forced to move home or end a relationship could be hit by a pen-alty of thousands of pounds."
Professor David Miles of Imperial College London has been asked to carry out a review to establish why fixed-rate mortgages are so much less popular in the UK than in the US. Only 1 per cent of the estimated 4,000 mortgage products available in this country are fixed for more than five years.
Discount and tracker mortgages are not only easier to extricate yourself from, they have proved popular in a time of low interest rates because they are such good deals. While there have been some excellent short-term fixed deals recently, discount rates have been more attractive still. Longer fixed-rate deals have lagged behind.
Leek United Building Society is offering 3.49 per cent fixed until 30 June 2005, for example, while a two-year discount from the Staffordshire costs 3.35 per cent.
The most uncompetitive deals are long-term fixes. Cheshire's 25-year fixed product has a payable rate of 5.49 per cent, but while this isn't bad, redemption penalties are significant. They start at 7 per cent in the first four years, falling to 2 per cent by the end of the mortgage term.
David Bitner at The Marketplace at Bradford & Bingley, an independent financial adviser, warns Gordon Brown against introducing too much certainty into the mortgage market. "The increase in home ownership that the Chancellor has proudly pointed to is a direct result of competition and innovation in the market," he says.
Many commentators think the Chancellor also missed an opportunity to help first-time buyers by removing stamp duty on these purchases. More than 60 per cent of first-timers pay the duty at the starting level of £60,000, yet when this level was introduced in 1993, the average house price was just £51,000, compared with nearly £120,000 today.
"The freeze on stamp duty is really a tax rise – one that will now affect many first-time buyers," says Julie Westby, president of the National Association of Estate Agents.
As expected, there was no real increase in the inheritance tax threshold, which rose slightly to £255,000. Given the boom in house prices, a more appropriate level, according to The Marketplace's Mr Bitner, would be £300,000 to £500,000. "The Chancellor has increased the threshold by only 2 per cent despite annual house price inflation last year running at about 26 per cent," he says. "As a result, more households are set to be affected – people the tax was never designed to affect."
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