Your Money: High price of a long fix

Even though interest rates have risen recently, we are still enjoying historically low mortgage rates. Yet these are not enough to get first-time buyers on the property ladder, because rising house prices and an increase in graduate debt are proving to be insurmountable obstacles.

Consequently, the number of first-time buyers has fallen by 12 per cent in the past year - from 39 to 27 per cent of all mortgage borrowing - according to the Council of Mortgage Lenders. And as we reveal on page 10, renting remains the only realistic option for many.

But while first-time buyers suffer, the mortgage market as a whole is showing no signs of slowing. October saw record lending for the third consecutive month. Total gross lending reached £27.5bn in October, up 8 per cent on September.

Less than half of this money was for new purchases, underlining that homeowners are still keen to remortgage. And this trend is likely to continue, particularly if the Bank of England raises the base rate again.

But while remortgaging is popular, fixed rates aren't. Just 34 per cent of total lending in October was on fixed-rate deals, compared with 47 per cent in August. This is because most lenders factored in a rate rise months ago, so current fixed deals look uncompetitive.

Even though many homebuyers and those remortgaging are shunning fixed rates, the European Mortgage Finance Agency (EMFA) announced last week that it is creating a blueprint for Europe-wide penalty-free, long-term fixed-rate deals. Meanwhile, Professor David Miles of Imperial College London is due to issue his interim report for the Treasury on long-term fixed-rate mortgages in three weeks' time.

While the Government is keen for us all to take out 25- or 30-year fixes, these would be even more expensive than the shorter fixes that homeowners are now avoiding. The EMFA proposals suggest a rate of 6.5 to 6.75 per cent.

Although the lack of penalties on the proposed long-term deals is attractive, this freedom comes at a high price. Cheshire building society already offers a 25-year fix, with interest set at more than 1 per cent below what the EMFA is proposing. First-time buyers would struggle even more than they do now if they had to pay such high rates. Let's hope Professor Miles bears this in mind when he makes his recommendations.

m.bien@independent.co.uk