Longer-term fixed rate mortgages could offer a solution to help turn "generation rent" into "generation buy" according to the latest FTAdviser Podcast
In the latest edition of the podcast, FTAdviser digital editor Damian Fantato was joined by Danny Belton, head of lender relationships at Legal & General Mortgage Club, and David Hollingworth, associate director at L&C Mortgages, to discuss the government's plans to encourage lenders back into the high loan-to-value market to help first-time buyers.
Both agreed the guarantee scheme announced by chancellor of the exchequer Rishi Sunak in his Budget last week was a positive move, but they cautioned that it ran the risk of stoking housing demand at the expense of supply.
They suggested a potential solution was the wider availability of longer-term fixed rates, to help first-time buyers onto the housing ladder.
Belton said: "The British mortgage industry doesn't really stray outside of two-year and five-year. We've dabbled in a bit of 10 and it has been OK but the psyche is not there to go any longer than that but it could provide some really good options for the right customer."
But he said the questions which needed to be solved to address this was making sure borrowers received the right advice, and making sure early repayment charges were not too punitive.
Belton said the UK was one of the only countries in the world which offered mortgages fixed for periods as short as two years and five years.
He said: "If a lender brings out a long-term fixed rate some intermediaries will use it - it all depends on the rate and the cost - because if you have got a rate of 4 per cent and you have got five-year deals at 2 per cent from a customers point of view a lot of them will want to know what they are paying and want the cheapest rate now.
"Other customers have seen an advert for a long-term rate and gone to a lender or intermediary and said 'that's what I want' because they want that certainty and security and it's that activity which has driven the sale rather than an intermediary recommending this long-term product."
Hollingworth said some borrowers could be cautious about locking in at a high rate and it is a "big ask" for a first-timer buyer to lock in at 95 per cent and potentially lose out as the property value increases.
He said: "Is [a long-term fixed rate] a way that lenders can start to offer a little bit more flexibility around how much they will lend because they are building in that long-term stability.
"I wonder whether that's where Boris [Johnson] comes from in terms of his desire to see that long-term fixed rate market revisited."
To listen to the full podcast click play on the player above. FTAdviser's podcasts are also available on Apple Podcasts, Spotify, Stitcher and Acast.