Not just with day to day living expenses but with the significant uplift in mortgage repayments. It has started to shine a serious spotlight on the residential mortgage market.
The UK has long been focused on short term mortgages between 2 and 5 years which have traditionally given mortgagees a high level of flexibility to shop around and get a better deal as and when their fixed rate comes up for renewal. This became particularly prevalent during the 15 year period of very low interest rates following the 2008 Financial Crisis. According to the Financial Times more than 90 per cent of UK borrowers take out a fixed-rate mortgage for 5 years or less.
Contrast this to many other established Western economies such as the US, Netherlands, Denmark to name a few where long-term mortgages of 10+ years are the norm and where the consumer is more protected against fluctuations in interest rates. Although the fixed interest rate is higher than their shorter-term alternatives, they can enable some buyers to get on the market for a lower deposit whilst borrowing a larger amount.
These longer-term mortgages are readily available. One such new entrant to the market last year, Perenna, is keen to challenge traditional lenders in the UK by offering mortgages up to a 40-year fixed term period. These type of long-term mortgages also have serious political backing in the form of the Shadow Chancellor Rachel Reeves who views them as a ‘revolutionary’ step to help buyers: “…potentially you would be able to borrow a bit more, to put down a bit less of a deposit. If you can take out some of that stress and instability, that will make a difference.”
It remains to be seen how much the long-term mortgage will be embraced by the average UK consumer but no doubt for some, the idea of mortgage rate stability in an increasingly volatile world, is likely to be a very welcome one.
