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Brokers unconvinced by Tories’ lifetime fixed rate mortgage proposal ‒ analysis

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  • 25/11/2019
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Brokers unconvinced by Tories’ lifetime fixed rate mortgage proposal ‒ analysis
Last week prime minister Boris Johnson suggested that if his Conservative party wins the general election it will launch a market for fixed rates where the terms do not change for the entire life of the mortgage, with the backing apparently coming from pension funds and other institutional investors. 

 

Johnson said: “The Conservatives have always been the party of homeownership but under a Conservative majority government in 2020 we can and will do even more to ensure everyone can get on and realise their dream of owning their home.”

However, the idea has been greeted with general scepticism by mortgage intermediaries, who argued the government should focus on house building instead.

 

Flexibility is king

Martin Stewart (pictured), director at London Money, said the idea has already been proven to be a failure, noting that culturally we are a nation of home movers.

He explained: “I always point out to clients that while their mortgage may be portable, they might not be if they have incurred a material change in their lives since first borrowing the money. I prefer to advocate flexibility rather than restrictive long term rates.”

Stewart added that the devil will be in the detail, and that while it makes for a nice headline during an election campaign, “it is ultimately the bottom line that counts”.

 

Focus on the real problems

James Mole, managing director of London Belgravia Wealth Management, also said he was not a fan of the suggestion, arguing that 25 years is such a long period of time that it makes it a “speculative gamble based on the unknown”.

Mole noted that long-term term fixed rates often have high early repayment charges, which would mean borrowers should be cautious from the outset, before even considering the other terms of a lifetime deal.

He added: “I’m all for thinking outside the box, but I’d rather the government focus on the housing shortage instead of mortgages which may or may not be suitable for a small percentage of people.”

 

Unrealistic and unworkable

Mark Harris, chief executive of SPF Private Clients, said that while it might be an idea for those seeking their last move or mortgage, for most borrowers it is an “unrealistic and unworkable” prospect.

He added: “Tellingly, there is no detail as to how it will be funded. As we know, pricing is dynamic, so what happens if someone fixes at the top of an interest rate cycle? Will there be exit costs to pay? Even relatively longer-term products such as 10-year fixes have not seen a great take-up due to the implications of fixing for the longer term.”

Jane King, mortgage adviser at Ash Ridge Private Finance, questioned whether the idea would even happen, noting that with a host of potential life changes, few will want to stay in the same property forever.

She continued: “My own clients rarely want to fix for more than five years so I don’t see why there would be any change to this stance in the future.”

 

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