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Brokers spell out tie-in dangers on cheap fixes

Brokers have criticised lenders offering cheap fixed-rate mortgages with extended tie-ins, saying the products should come with a severe health warning.

The industry is concerned that, with all indications pointing towards a rise in interest rates, borrowers who take out a short-term fix with repayment penalties will be hit with a hefty increase in monthly payments once their deal reverts to a standard variable rate.

Two of the firms cited by brokers are Portman Building Society and Alliance & Leicester. Portman is offering a two-year fixed rate at 1.19 per cent which reverts to the base rate plus 1.99 per cent after the fixed period. A&L has a two-year fix at 1.25 per cent that reverts to its basic variable rate after the fixed period. In both cases, the borrower is tied in for a further four years by repayment penalties.

Brokers say that these products can be dangerous if they are sold to the wrong person as many people will be unable to afford a major change in payments.

Savills Private Finance associate Simon Jones says: “It is essential that these products are sold with proper advice – it is very rare that a customer&#39s fiscal circumstances will accommodate such a huge change in rate. These products should come with a severe health warning.”

Premier Mortgage Management managing director Mark Mountney says: “These products can be dangerous if not rolled out properly. If lenders are selling them directly, they must take responsibility and make sure the client knows what he is getting into.”

Portman Building Society group press officer Lynsey Hallam says: “This product is not for everyone but it provides choice. We have always been up front and transparent about its redemption penalties.”

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