That the housing market is often out of sync with the rest of the economy is a well known fact for which, of late, the Chancellor should have been grateful. A bullish housing market, after all, has driven the economy over the last two years. However, it could be argued that his interest in fixing the market is primarily geared to convergence issues and the euro. This is being examined as part of the Treasury’s assessment of the five tests on euro entry that are due to be published by 7 June.
David Miles, professor of finance at Imperial College, has been commissioned by the government to examine how Britain could develop long-term fixed mortgages. His interim report is due in the autumn and a full report is scheduled for publication in time for next year’s Budget.
The Chancellor has also commissioned Kate Barker, a member of the Monetary Policy Committee, to investigate how to reduce barriers to increase housing supply.
Commenting on these developments, David Bitner, head of product operations at The MarketPlace, said: "It's rather curious that the Chancellor wants to develop the case of longer-term fixed rates, given demand for them is already growing organically and will continue to grow in a sustained low interest rate environment.
“He should be wary, though, of holding the US mortgage market up as the universal model as it hasn't been free from volatility itself. The increase in UK homeownership that the Chancellor has proudly pointed to is a direct result of the competition and innovation of the mortgage market and this should be allowed to continue in the interests of all UK borrowers."
Matthew Wyles, group development director at Portman Building Society offered a more supportive response but felt that long-term fixes raised a number of consumer-related issues. "We support the Chancellor's proposed review of the UK's fixed-rate mortgage market”, he said, “but warn that the early repayment fees associated with long-term fixed-rate mortgage products tend to be very large. There is a very real cost associated with long-term certainty."
However, it was Bill Dudgeon, managing director of TMB, the self-certification, flexible and buy-to-let specialist lender, who really turned the Chancellor’s fixed idea on its head. “From time to time lenders in the UK have offered fixed rate mortgages on terms of between 10 and 25 years”, he said. “They've never proved that popular, mainly because they always look expensive compared to short term deals. Many European countries have far less competitive mortgage markets than we have in the UK and those short term deals just aren't available, so people have little choice to take longer term products.”