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Shapps 30-year mortgages under fire

Friday, 21 October 2011 10:45 AM

Housing minister Grant Shapps's call for longer term fixed rate mortgages may not be practical, warns the Building Societies Association (BSA).

Speaking at the BSA's Annual Mortgage Seminar yesterday Shapps spoke of his desire to let "people know where they stand" and create "stability" by offering fixed rate mortgages of as much as 30 years.

But Paul Broadhead, head of mortgage policy for the BSA, questioned whether the move, which is an echo of a similar proposal from then chancellor Gordon Brown in 2003, can really be a tenable option.

He said: "Longer-term fixed rate mortgages have been offered in the past but with limited consumer demand."

There are currently no mortgages with guaranteed lifelong interest rates on the market and few which can be fixed for five or more years.

Many of the deals which are available rely on borrowing less than three quarters of a property's long-term value.

Shapps said: "Longer term mortgages – possibly as long as 30 years – could help families on tight budgets know exactly where they stand when they're buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.

"While they won't be right for everyone, lenders should start to look at the case for 30-year mortgages and how we can move to a more stable housing market where first-time buyers can get their first foothold on the property ladder at a cost they know they can afford."

The uncertainty over whether such mortgages would be attractive to people was reiterated by Chris Smith, Yorkshire Building Society's group direct mortgage manager.

He said: "The Yorkshire has offered 25-year fixed rate mortgages in the past but these had a very small take-up rate.

"One of the challenges of offering very long term mortgages is balancing the length and security these give to the borrower with flexibility should their needs or circumstances change."

However he did add that there was a trend from some customers to choose slightly longer terms (seven years) which he added is a change from a few years ago when two year fixed rate mortgages were more popular.

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