This view was mooted last week by Financial Policy Committee member Richard Sharp who went one step further by saying that, in his view, he would fix now and fix for longer.
What followed was perhaps a little sensationalist but sparked an interesting debate nonetheless.
Talk of the 30-year fixed rate mortgage burst onto the stage taking Sharp’s comments at their most literal.
But is the 30-year fixed rate mortgage a truly viable option and one which would be well received by the UK mortgage borrower? Or is it an over-the-top headline grabber which serves only to sell a few papers until the dust settles again?
We put the question to our industry experts to get their take on Sharp’s view on rates and what they think of the legend that is the 30-year fix.
Alan Cleary, managing director of Precise Mortgages, discusses the practicalities of getting out of a long-term fix and how the US has it sewn up
Dale Jannels, managing director of AToM, steps into the psyche of the UK borrower to consider why long-term fixed rates have never been a big hit
Brian Murphy, head of lending at the Mortgage Advice Bureau, gives some tips to lenders about how they could make long-term fixed rates more attractive
Alan Cleary, managing director of Precise Mortgages
I agree with Richard Sharp in that if borrowers lock in to long-term fixed rates today it would insulate them from future interest rate rises, but past experience suggests that this type of product is not well received by UK borrowers.
There are a handful of ten-year products available in the UK with very attractive rates of between 3.8-4.5% but the problem tends to be the early repayment charges which can be prohibitive.
Even at these attractive rates they are still a good 2% more expensive than a two-year product and UK borrowers have a habit of favouring lower monthly repayments.
Portability is another area which worries borrowers as many UK long-term fixes do not have guaranteed portability clauses built into them.
When considering a long-term fixed rate the lender must consider their cost of funds over the duration and the borrower must consider how their circumstances may change.
Obviously, the longer the duration of the fixed-rate the more difficult it is for both parties to assess the risk.
In the US long-term fixed rates are much more flexible than they are here. Borrowers are not locked into expensive ERCs so they have the freedom to change mortgages as their situation changes.
This is the key to why they are popular and if we want to see more long-term fixes in the UK we will have to address the relative inflexibility of these products.
Dale Jannels, managing director of AToM
There are so many variables in one’s lifetime that prevent customers from securing long-term fixed rates.
One-in-three marriages are set for divorce. Securing a job is a big priority and it doesn’t matter on where in the UK people may relocate. So does anyone really know what they will be doing in one year’s time, let alone five or ten?
We have seen a number of lenders test the market with ten-year fixes including Yorkshire, Accord and more recently Santander (albeit through selected brokers).
The fact these products are no longer around suggests that take up was limited. In fairness, lenders are taking a bit of a gamble on the cost of funds for such an elongated period and this will have an effect on their desire in this area.
Until recently two-year fixes seemed to be the norm with many expecting to have great rates still on offer at the end of their period in which to move on to. Then customers started looking at longer three to five-year terms.
This has also been the trend in the buy-to-let market and also the near prime sector. But very few borrowers asked for anything longer than five years. Until now!
In the last few weeks we have been asked a number of times for terms in excess of five years so perhaps the tide is turning and the demand for longer-terms are again increasing.
Will anyone in the UK take a 30-year term? Personally I doubt it (unless there are reduced ERCs) but only time will tell.
Brian Murphy, head of lending at Mortgage Advice Bureau
The UK mortgage market has from time-to-time offered 25-year fixed rate products with several high street brands historically testing the water.
Rates at that time were significantly elevated in relation to two, three and five-year products, the fixed period duration that the majority of borrowers tend to opt for, and as a consequence at that time these long-term fixed deals tended to wither on the vine.
The issue that has prevented longer-term products from really gaining traction has been around the exit penalties that have applied in the past and general consumer reluctance to commit to anything beyond the short to medium term.
Consumers whose preference it is to fix their mortgage payments by and large have been focused on two, three and five-year terms as these are timelines that they can envisage when looking ahead.
If lenders were able to develop products that were flexible, thereby allowing the mortgage to be ported where the borrower was moving home but allowing the mortgage to be repaid early in the event of a significant change in circumstances without onerous penalties, then I think there would be some level of demand for such a product.
The fact that lenders have attempted to market these in the past with little success and with little or no product currently on offer in this sector suggests that borrower appetite is relatively small.
