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Last Updated: Saturday, 18 August 2007, 07:18 GMT 08:18 UK
Have Your Say: A Quick Fix?
Woman gazing into a crystal ball
Will a fixed-rate mortgage still be a good deal 25 years later?

In the next year and a half, more than two million borrowers may be in for a nasty shock when they come to the end of short-term fixed-rate deals taken out when rates were low back in 2005 and 2006.

Considering how much interest rates have risen since then, when these consumers come to remortgage, they may face much higher monthly payments.

The government believes one way to avoid this kind of volatility would be if more of us took out longer term fixed rate mortgages.

We asked for your comments, a selection of which are below. This debate is now closed.

It was interesting to note that most people in the financial services industry are against the idea of 25 year fixes. That is, of course, because it would reduce their commission and fees. I can not help wondering why it is fine to give an insurance company your pension pot and agree to a fixed rate annuity, but it is not ok to have fixed rate mortgages.
Richard Riley, Wallsend, North Tyneside

In the coming years, bankrupts I deal with may have to sell their house and their three buy-to-lets
Stephen Hunt
The point of my investigation was to look at the issue of 25 year fixed-term products. I was interested to find out why the government feel that creating an obscure financial instrument will help promote more widespread use - it will not - and why consumers do not take them up - in the current market where everyone is trying to borrow to their limit, their main focus is on next month's payment, not the long-term. A property crash is more likely than many experts are prepared to admit. Too many conditions are the same or worse than when the market last crashed.

I reject that a shortage of housing means there is no chance of a crash. This suggests that in the early '90s there was no shortage of property, which was not the case. People are propping up the market by taking out loans they can barely afford. They are willing to borrow, and lenders lend, on the assumption that prices will rise to cover short-term risk. If prices fall, that assumption will change and there will be a drop in purchasers who are willing to stretch themselves to enter the market. Why take out a 100% mortgage when prices are falling - why not wait a year? Lenders who were driven by short-term targets or salesmen on commission, will find this lending is no longer covered by an appreciating asset. The sub-prime lending crisis in the USA shows signs of this. It would be foolish to think that it could not happen here.

There are many property owners who would be more prepared to sell at a discount than there were in the early '90s. More people have buy-to-lets and have overstretched themselves to make "an investment". If these people get into financial difficulty there could be a lot of property on the market. I am an insolvency practitioner. In the early '90s I dealt with people going bankrupt who had to sell their houses. In the coming years, bankrupts I deal with may have to sell their house and their three buy-to-lets.
Stephen Hunt, (listener who joined Lesley Curwen to make "A quick fix"), London

The government is totally missing the point
Liz Ward, Tenterden, Kent
Back in the '80s I worked for a mortgage lender structuring one of the first five year fixed-rate mortgages. We didn't borrow money to lend on, but "hedged it" in the swaps market. If the borrower defaulted (i.e. changed mortgage) the bank still had to pay their agreed payments, so the bank's risk was mitigated by redemption penalties payable by the householder. One of the problems with any long-term fixed-rate mortgage taker was that they would probably want to move house, so the mortgage companies made sure that this could be done smoothly. Most fixed rate mortgages are, therefore, portable. However, not many people want long-term fixed-rate mortgages. The government is totally missing the point. In the late '80s when mortgages and house prices went up so fast, it was linked to double MIRAS being removed. It fuelled a new generation to buy houses, because it would be so much more expensive later. Now buy-to-let has taken off. This has reduced the properties available for first time buyers. When I was in my 20s in 1980 I worked flat out to pay my mortgage, but now it seems that people expect to pay huge amounts of interest on their credit cards of 10% or more a year, buying things they can live without, but are complaining because mortgage loans are about 7%. The banks have a responsibility not to lend to those they feel will get into difficulty, but ultimately it is the responsibility of the individual taking out the loan. Twenty-five year mortgages will be very expensive for the banks to put in place which, ultimately, may make them unattractive to the borrower, who is always looking for the next bargain round the corner.
Liz Ward, Tenterden, Kent

Mortgages don't of themselves create new dwellings and that is what is needed
Adrian, Plymouth
For those on modest salaries unlikely to rise above inflation and who tend to stay put, there is some attraction to the fixed rate mortgage, however mortgages don't of themselves create new dwellings and that is what is needed. As a Plymouth landlord for many years I can confirm what the gentleman from Exeter said concerning the effect of immigration; the proportion of foreign applicants is much greater now than it was 25 years ago. Family break-up, children leaving home to live 'independently' at taxpayer's expense also add to demand for small occupation units. All good for me personally but bad for our country. One of the effects of the security of tenure provided by the rent acts (no eviction without leave from a court) is to make landlords much more wary of offering accommodation to an applicant who requires housing benefit; thus an unemployed man, ex- prisoner, pregnant woman or student is unlikely to be regarded with enthusiasm. People in these categories will generally find it more difficult to obtain the sort of accommodation they would like, or even any accommodation at all. The rent acts tend to inhibit property owners from offering accommodation, thus reducing the overall housing provision.
Adrian L Romilly, Plymouth

Fixed term mortgages are the norm in France. I was surprised to feel so much reticence for this system on your programme. The other big difference is choosing a shorter length of mortgage, usually 15-20 years only. My mortgage was a fixed 6.15% over 9 years in 1995 for example. Sure, you can always be annoyed that the rates may fall, but you know exactly how much you will pay.
David Vollborth, Paris

It was one of the best financial decisions I have made
Alex, Phoenix, USA
I have never owned property in the UK, however growing up there I am certain that the lack of long term fixed rate mortgages and debt pushing tactics of the banking industry was a factor in my parent's financial difficulties. My parents were surprised when I told them that in the USA I had taken out a 30-years fixed-rate mortgage on my first house. They told me that there was no such thing in the UK. It was one of the best financial decisions I have made, and the current global housing market woes are not hurting me like many others with flexible or interest-only rates. I thought ahead when hunting for a mortgage, 5 years ago, and only looked at fixed rates for 15 and 30 year terms with no pre-pay penalties. I wanted the security of knowing exactly what my payments would be each month. I also anticipated an increase in future annual income which would lower my income to debt ratio if I had the fixed interest rate and thus would allow me to increase my monthly payments to pay-off additional principle. My mortgage is now less than a typical rent payment for a flat in the same area.
Alex, Phoenix, USA

There are long term dangers for lenders issuing 25 year fixed rate mortgages. After 10 years, borrowers can leave without penalty if we have lower interest rates or stay on at the same cost if we have higher interest rates - a case of heads I win, tails you lose. Remember Equitable Life who guaranteed too much and were all but bankrupted by interest rates moving the "wrong" way. Regarding covered bonds, what exactly are they? Just how will they support penalty free 25 year fixed-rate mortgages without danger to the lenders' solvency, while costing only 0.01%? It will take a lot more to convince me.
Chris Grey, Guildford

Talking endlessly about making mortgages more affordable is not going to solve our housing problems
David Topple, Exeter
As is the case with the insane intention to build 3 million new homes in the coming years, we have here yet another distraction from the more important issues that should be discussed in relation to housing, such as why we've ended up with this ridiculous boom in the first place. I'd say it's probably something to do with: city bonuses pouring into the market in the south-east, foreign capital pouring in as well, people moving to this country from abroad, low interest rates, easy credit finance, the British people's obsession with owning their own homes and our shortage of living space. Talking endlessly about making mortgages more affordable is not going to solve our housing problems or lead to affordable homes. Of course, of the above points the most controversial is immigration. When are we going to discuss its effect on the demand for housing?
David Topple, Exeter

The comments we publish are not necessarily the views of the BBC but will reflect the balance of views we have received. It is helpful if contributors state if they work for any organisation relevant to an issue discussed. Readers should form their own views on whether messages published represent undeclared interests, or views prompted by a common source.


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