The mortgage industry is warning the Government to carefully consider proposals to increase fixed-rate terms, arguing such a move could have serious repercussions for homeowners.
The Chancellor, Alistair Darling, this week said mortgage brokers favoured short-term fixed-rate deals as this required customers to visit them more frequently, and thus the broker could make more money.
The Government now plans to increase the number of long-term fixed-rate deals available to consumers.
Commenting on the Chancellor's proposals, Brian Murphy, head of lending at the Mortgage Advice Bureau, says: “It fails to take into account the ever changing lifestyle of today’s society.
“The ideal of continued successful employment, marriage, two point four 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 non commonsensical for some.”
Some are worried an increase in long-term deals will also damage industries that support lenders and intermediaries.
Duncan Samuel, managing director of Convex Conveyancing, says: “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 re-mortgage will see turnover slashed, and they will have to look again at their business models.”
Steve Walker, managing director of Promise Finance, says the Chancellor's statement is an ill-considered knee-jerk reaction.
He says: “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. And as rates drop, the finger will again be pointed at brokers for tying borrowers into a long term deal.”
House prices have trebled since 1997 and the Government is attempting to make housing more affordable.
Several measures have been proposed, including building more houses, simplifying planning applications and increasing fixed-rate terms.
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