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Borrowers do not understand long-term risk says Miles

Mortgage borrowers attach much more weight to the initial monthly repayments they will have to make rather than the overall cost of their loan over its entire term, Professor David Miles has concluded in his interim report published by the Treasury today.

The Miles Review of the UK Mortgage Market says that borrowers have a poor understanding of risk and pay scant attention to the security and insurance long-term fix rate mortgages could offer them, providing protection against unexpected interest rate rises.

Miles says: “In recent decades there has been been little long term fixed-rate mortgage lending in the UK. This report analyses why that is so. For many households, particularly those borrowing a great deal and those whose incomes are uncertain, there are significant advantages of fixing the level of repayments for several years. Yet few of such borrowers take out longer-term fixed-rate mortgages.”

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