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Hothouse flowers

There is nothing like a controversial mortgage product or two to shake things up a bit. In the past couple of weeks, two lenders have obliged by launching new products. Neither is revolutionary, both have been done before but that does not make them any less controversial.

The first is Nationwide’s 25-year fixed rate. Long-term fixes have not proved popular, despite Gordon Brown’s belief that they are the best thing for us. Their relatively high rates compared with short-term fixes have always made them easy to dismiss out of hand. But with long-term swap rates falling, the rate on Nationwide’s 25-year fix – 5.49 per cent up to 90 per cent loan to value or 5.79 per cent up to 95 per cent – is quite competitive.

The main problem with longer-term fixes is the lack of flexibility. Nationwide imposes no early repayment charge after 10 years. However, if a borrower wants a 10-year fix, they should choose Derbyshire’s 4.95 per cent product and save themselves some money.

The other controversial product – Alliance & Leicester’s PlusMortgage – could appeal to significantly more borrowers. It is aimed at first-time buyers struggling with affordability, letting them borrow up to 125 per cent LTV.

Again, this is not ground-breaking stuff but there are likely to be the usual mutterings about the dangers of getting into negative equity from the outset, with up to 95 per cent secured borrowing and up to 30 per cent unsecured. In reality, few borrowers will qualify for the full 125 per cent. If they tick all the boxes, there is a relatively high income multiple available – up to five times joint or single income – but affordability criteria will be used, presenting a fuller picture of how much the borrower can actually afford.

One very important feature is that the product is only available through brokers. This is excellent news for the industry as well as borrowers, who will not be able to get one of these mortgages without understanding the full implications.

Ultimately, A&L’s product will mean better pricing in the market. Indeed, rates have already started falling. A&L is offering a cheaper two-year fix at 5.64 per cent than either of BM Solutions (5.65 per cent) or Northern Rock (5.85 per cent). One waits to see how they react but it would not take a genius to predict that they might squeeze their margins further still.

The important thing is that lots of options are available to borrowers. The fact that Nationwide and A&L are trying something relatively new should be applauded.

Mark Harris is managing director of Savills Private Finance.

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