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Last Updated: Thursday, 12 July 2007, 11:15 GMT 12:15 UK
Lender answers 25-year loan call
For Sale signs
Longer mortgage deals are rare
Nationwide has relaunched its 25-year fixed-rate mortgage, after the government said it wanted to see more long-term mortgages on offer.

Borrowers will be able to fix their interest rate at 6.39% for the full 25-year term.

The Nationwide said the mortgages provided a mixture of "stability and flexibility" for borrowers.

But mortgage experts warned that 25-year mortgages can be expensive and may not suit many borrowers.

Higher costs

The government sees encouraging lenders to offer more long-term fixed-rate deals as key to bringing greater stability into the housing market.

The 25-year fixed rate... offers long-term stability and flexibility for borrowers who want to protect against fluctuations in interest rates
Stuart Bernau, Nationwide

They could provide an alternative to short-term fixed-rate mortgages, over two or three years, which account for a substantial proportion of mortgage deals.

At present, debt advisers are concerned that lots of short-term fixed-rate deals - which were taken out when rates were historically low - are coming to an end.

As a result, hundreds of thousands of homeowners could soon have to meet the cost of the five UK interest rate rises which have taken place since last August.

The worry is this could lead to increasing mortgage arrears and even instability in the housing market.

Fixing mortgages for a 25-year terms could prevent this situation from happening, and both Chancellor Alistair Darling and Prime Minister Gordon Brown have said in recent days they want more of this type of deal.

Off the pace?

Currently only a handful of lenders offer 25-year fixes.

But according to the Nationwide, which has now relaunched its 25-year deal, there is consumer desire to fix mortgage interest over the long term.

People going for one of these 25 year deals may end up counting the cost soon
Andrew Montlake, Cobalt Capital

"Our experience is that the 25-year fixed rate has a place in the market and offers long-term stability and flexibility for borrowers who want to protect against fluctuations in interest rates," Stuart Bernau, Nationwide's executive director, said.

"The relaunch of this product follows a very successful uptake earlier in the year and will allow even more borrowers to benefit from the advantages it offers," Mr Bernau added.

However, 25-year fixed-rate mortgages can be expensive, according to an industry expert.

"Fixed-rate 25-year mortgage interest rates are a little off the pace," said Andrew Montlake, director at mortgage brokers Cobalt Capital.

"We are near the top of the interest rate cycle. People going for one of these 25-year deals may end up counting the cost soon.

"What's more, they are not flexible. In Nationwide's case if the borrower wants to switch provider within 10 years they have to pay a hefty penalty," Mr Montlake added.

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