Long fixed-rate mortgages - is there a demand?

By Jennifer Hill

LONDON (Reuters) - Government moves to increase the affordability of long-term, fixed-rate mortgages could help first-time buyers, but housing experts questioned how many people actually want such loans.

Chancellor Alistair Darling said in the pre-budget report that measures to help lenders provide more fixed mortgages of 10 years or more would be brought forward in next year's Budget, but gave no details as to what form they would take.

At present, 29 lenders offer fixed-rate mortgages of 10 years or more, but only a relatively small proportion of borrowers actually choose such products, preferring short-term fixed or discounted deals.

Long-term fixed rates provide the security that repayments will be set for a lengthy period of time, regardless of movements in the Bank of England base rate.

But the length of the lock-in and hefty penalties for exiting the deal early are the main drawbacks.

Michael Coogan, director-general of the Council of Mortgage Lenders, said: "There is a key trade-off for borrowers in choosing a longer-term fix, relating to the potential costs of exiting the deal early, and this is the key feature that needs to be addressed to stimulate mainstream consumer appetite."

However, others were sceptical about consumer demand, even if moves were made to increase flexibility and reduce costs.

Ray Boulger, senior technical manager at independent mortgage broker John Charcol, said borrowers who wanted a long-term fixed rate had plenty of choice at present, with flexible and offset products available, as well as loans offering early exit without penalties.