With recent Base Rate movement and growing uncertainty over affordability issues, Darling admitted that the Labour government was looking at increasing the supply of long-term fixed rate loans, up to 25 years. He admitted this move was also in response to escalating fees by brokers and lenders and was being investigated in an effort to re-stabilise the housing market.
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However, a number of commentators have condemned Darling’s proposals, claiming them to be ‘out of touch’.
Steve Walker, managing director at Promise Finance, expressed his disappointment that the government was blaming brokers for problems in the housing market. He said: “Yet again the finger of blame points at brokers. But in a period of stability, the fact that borrowers can change lenders and interest rates is seen as providing choice.
To create a long-term fixed product would undoubtedly result in higher rates as the lenders will need to factor in potential interest rate increases. So many borrowers will be worse off.
“As rates drop, the finger will again be pointed at brokers for tying borrowers into a long-term deal. This is yet another knee-jerk reaction that does not appear to have been fully thought through. It is not brokers or the mortgage industry which has caused increases in interest rates.”
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Duncan Samuel, managing director at Convex Conveyancing, added: “Regulation has hit the mortgage industry hard since ‘Mortgage Day’, and has led to a lot of consolidation. A proposal such as this will inevitably cut volume and shrink it further, but for the first time, volume providers of legal services will also be hit. The big providers who have done well out of remortgages will see turnover slashed, and they will have to look again at their business models. They may consider following the broker market into purchase work.”
Jonathan Cornell, technical director at Hamptons International Mortgages, urged the government to go back to the drawing board. He said: “While I’m sure the new Chancellor means well, I think he is flogging a dead horse. All long-term fixed rates have long-term early repayment charge periods and, as we know, our lives may change significantly over a five, 10, 15, 20 and especially a 25-year period. In my experience, these penalties discourage clients from taking out long-term fixed rates.
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“Considering the long-term fixed rates currently available, I believe many are unsuitable for the vast majority of borrowers. How many of us can guarantee that we will not divorce, split up, suffer bereavement, lose our job, relocate aboard, decide to rent or change our job within the next 25 years?”
Brian Murphy, head of lending at Mortgage Advice Bureau, admitted that the move was an interesting one that would make sense for borrowers, and the economy, but that changing conditions would make it difficult to implement. He said: “Increasing the number of longer-term fixed rate loans is, in theory, an interesting concept as a solution to the issue of affordable housing. However, it fails to take into account the ever-changing lifestyle of today’s society.
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“The ideal of continued successful employment, marriage, 2.4 children and stability for the rest of our lives is becoming far from the reality of today’s world which encourages social mobility and diversity. In this sense, the notion of locking yourself into a mortgage contract that restricts your lifestyle for the next 25 years appears nonsensical for some.”
