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Last Updated: Tuesday, 27 March 2007, 09:39 GMT 10:39 UK
Fixed mortgage rate for 25 years
Nationwide branch
Only a few hundred customers will be able to take up the new offer.
The Nationwide building society is launching a 25-year fixed rate mortgage at 5.49%.

Fixed rate deals have become more popular than usual in the past few months since the Bank of England started raising interest rates.

However, a deal lasting as long as 25 years is unusual, with most typically lasting from two to five years.

The Nationwide said its mortgage would be flexible, as an early redemption fee would not be charged after 10 years.

The deal is available for a short time only and is being funded with just 50m of cash.

As the average value of a mortgage being taken out is currently 123,000, that suggests the mortgage will only be on offer to about 400 borrowers.

The Nationwide offer comes with a slightly higher interest rate than the current average rate for all fixed rate deals which, according to the Council for Mortgage Lenders, stands at 5.27%

Lack of demand

Mortgages lasting 25 years have been offered before, with similar deals currently on offer from the smaller Cheshire and Kent Reliance building societies.

Back in 2004 a US lender, GMAC-RFC, launched a 25-year fixed-rate mortgage and HSBC a 10-year one.

But they did not prove to be very popular.

"We didn't know how much demand there would be for 25-year fixed-rate mortgages, so we decided that the only way to find out was to launch one. There was no great demand," said a spokesman for GMAC-RFC at the time.

"Borrowers can just about visualise what they will be doing in five years," HSBC explained in 2004.

"Over 10 years or longer they find it more difficult and don't want to be locked into something with redemption penalties in case their circumstances change."

Other lenders to have launched 25-year fixed rate mortgages in the past few years have been the Manchester building society, Leeds & Holbeck building society and the Standard Life bank.

One reason for their lack of success was that the interest rate on offer was often significantly higher than that available for shorter term deals.

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