Monogamous Mortgages

How committed are you to your mortgage lender? What would it take for you to stay with them? Are you the wedded type that is comfy in the relationship and are happy to remain monogamous, or are you one of a new breed of rate tarts?

Are you constantly chasing the best interest rate, convinced that the grass is greener on the other side of the fence? With so many competitive deals in the marketplace it has become common practice to switch your mortgage – Lenders even offer to pay your valuation and legal fees for you.

A recent announcement from the Chancellor of the Exchequer would suggest that he would like to see our established, highly competitive and pro-consumer market altered. The Chancellor has asked for a review to be conducted on the feasibility of lenders offering long-term fixed rates on mortgages for between 10 and 25 years.

This obviously would mean marrying one mortgage lender for the total life span of your loan, at the mercy of their service standards, redemption clauses and lending policies. We think the chancellor needs to stop playing politics with our mortgages!

Present

Currently the mortgage market is full of competitive, fixed rate mortgages, all offering very low redemption penalties. This is a sign of the times, with mortgage lenders forced to compete for your business.

Many borrowers feel inclined to fix their interest rate for maybe 2 or 3 years, as they know that once the period is up they will be able to choose again. This system is working perfectly well and the cards are balanced very much towards the consumer.

Lenders have been forced to offer wafer thin rates and refunds of valuation and legal fees to attract new business. This environment means that the consumer is getting the best deal, and if they are cute about it, can also move on after their fixed rate term to another blockbusting deal.

Future

It's obvious to see why the lenders would be happy to see mortgages all sold on 10-25 year fixed rates. They will be able to tie borrowers in, and charge redemption clauses within the terms and conditions.

Their costs would be reduced overnight, as they would not have to keep constantly chasing re-mortgage business. Mortgage deals would become less competitive almost immediately.

Pink Finance think that by introducing long-term fixed rates, the chancellor would tip the balance of the mortgage market to favour the mortgage lenders. Consumers would be restricted in their mortgage options and be held to ransom when wishing to move lenders.

Politics

The Chancellor has announced this review to impress our potential European partners and to give the impression that we will consider changing our market practices to mirror there's.

Only the whole review is just 'fudge', as the whole system of long-term fixed rates is unworkable. It's no accident that home ownership within continental Europe is far lower than the UK, with people so unwilling to commit to long-term interest rates.

The fixed rate system in European countries act as a barrier to home ownership and the huge commitment that taking a mortgage entails discourages people from owning their own home.

It's quite obvious to us that our potential European partners should be looking at changing their practices towards a more flexible, competitive, consumer friendly and pro-home ownership system such as the one that we have.

Why not?

There a number of strong reasons for not taking long-term fixed rate mortgages.

You could find your self in an uncompetitive interest rate, only a few years after taking out your 25-year mortgage, leaving you without an option to switch lenders to a more competitive offer.

Your lender could ask for high redemption charges within the terms and conditions of the mortgage, making it expensive for you to be released from what was a long-term commitment.

You could find yourself committed to one lender's individual lending policy, so if you wish to move house in the future and your income, employment status, or type of property is not within their criteria you may not be able to do so.

Even five years is a long time – people's circumstances change, they move on, want to forward their careers and upgrade their living accommodation. Committing to a 25-year mortgage rate could restrict this movement, affecting not only the property market, but also employment prospects as people become tied to the home they bought.

Conclusion

Pink Finance think that the Chancellor should stop playing politics with our perfectly good system of mortgages, and turn the governments attention to solving the shortage of housing that faces this country.

It would be far more productive to look at ways to accommodate public servants like Nurses, Police Officers and Teachers, in areas where housing has become unaffordable. Our system of mortgage rates work perfectly well, very much in favour of the borrower. Choice, flexibility, and low interest rates are the future!

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