Chancellor Gordon Brown's plans to base the UK mortgage market on the US long-term fixed-rate model could be in for a setback with even in long-term fixes starting to lose their appeal even in the US.
US borrowers have traditionally taken out 30-year fixed-rate mortgages. Brown praised the American system in the House of Commons in June, saying it could be the solution to volatility in the British housing market.
But US giant General Motors' subsidiary GMAC-RFC says adjustable-rate mortgages are enjoying a boost in popularity in the US at the expense of longer-term deals.
Charcol senior technical manager Ray Boulger says two and five-year fixes are becoming more popular in the US because short-term money rates have reduced dramatically in comparison to long-term money.
Doubts have long been voiced over the UK consumer's appetite for long-term fixed-rate mortgages, and market experts have warned that the UK public prefers lower short-term rates and flexible mortgages above all.
GMAC-RFC capital markets director Stephen Hynes says: “Traditionally, the US market has been driven by 15 and 30-year mortgages but at the moment people are moving towards short-term fixed followed by a variable rate mortgages. The US market is very sensitive to where rates are going and people are chasing rates lower.”
Boulger says: “The 30-year fixed rate in the US has risen to more than 6 per cent in the last 30 weeks which goes to show that it is not that stable. Leeds & Holbeck Building Society and the Cheshire are both offering long-term fixes more cheaply than the US. It is good to have a choice of rates, particularly as people are nervous of long-term fixes here.”