Mortgage brokers have told FTAdviser that while now is not the right time for borrowers to explore long-term fixes, the evolution of the market in this direction is “long overdue”.
With the Bank of England base rate now sitting at 5 per cent, mortgage borrowers at the end of their fixed-term deals are now faced with significantly higher monthly repayments than when they first entered into them.
The situation is so dire that the government this week announced a mortgage charter, signed by 30 lenders, to help support mortgage borrowers.
The pressure that rising interest rates are putting on borrowers has led some brokers – and housing secretary Michael Gove – to say that an overhaul of the UK’s lending space is needed and that longer-term fixes should become a greater feature of the market.
Longer-term fixed mortgage rates are commonplace in other European countries such as Belgium, France, Germany and the Netherlands.
According to a 2021 report from the European Mortgage Federation, while most mortgages in countries like the UK and the Czech Republic have a fixed rate they are mostly below 10 years.
By comparison in Belgium and Denmark, most mortgages have fixed-rate periods above 10 years.
Source: European Mortgage Federation, 2021
Speaking to FTAdviser, mortgage adviser Austyn Johnson, the founder of Mortgages for Actors, said he explored buying a house in Italy four years ago that had a 2 per cent fixed-mortgage rate for life available on it.
About three years ago, a client of his got the same deal when he decided to emigrate to Milan.
“Fixing for life is very common there, how I wish I had taken it up,” he said.
“If the UK can afford fixing deals for life, the troubles with affordability at remortgage time are gone,” he added.
Johnson said as a mortgage adviser, he knows a move towards a market like this would be “shooting himself in the foot”, but he said if it is the best course of action for borrowers it warrants being pursued.
The UK
UK Finance director of mortgages, Charles Roe explained that part of the reason longer-term fixed rates have not taken off in the UK is because of customer concerns that interest rates might move or that they might have a change in circumstances.
“Demand for these products is typically very low,” Roe said.
“There is nothing in the regulatory rulebooks that prohibits longer-term fixed deals being offered by lenders – the market is competitive and innovative and would be able to respond if the demand were there.”
If there was a balance between flexibility, stability, costs and exit where necessary, we could see more recommendations Justin Moy, EHF Mortgages
