Lenders and IFAs have denounced the review of the UK fixed rate mortgage market announced by Chancellor Gordon Brown in the Budget, branding it pointless and irrelevant to the majority of borrowers.
The Chancellor announced in the Budget he was commissioning a review investigating why there is such a low take up of long term fixed rate mortgages in the UK compared to the US and other EU countries. His intention is to determine whether the mortgage market is to blame for stifling longer-term loans.
The review will be conducted by David Miles professor of financial economics at Imperial College London.
But lenders and IFAs say the problem is demand not supply, as the UK has increasingly sophisticated borrowers who seek cheap short-term deals which they can redeem as soon as possible to switch to rival providers.
Nationwide chief economist Alex Bannister says most borrowers fear being locked into long-term deals which become expensive if interest rates fall. He believes the review will neither boost demand nor encourage lenders to offer such products.
IFAs argue the Treasury is wrong to compare EU markets with the UK's as the latter is more sophisticated, believing the main problem is the higher rates of longer term loans.
London & Country mortgage specialist David Hollingworth says: “Long term deals carry redemption penalties and just aren't flexible enough. You can buy these loans now – people don't want them.”
Prudential national mortgage manager John Malone says: “There is no point in having a review. Redemption penalties on short-term loans are low and people move around far more than they used to. It's all about demand and there isn't any.”
A Treasury spokesman says: “We are looking at all these areas. This review is important. Let's give it a chance to report back before we criticise it.”