Mortgages -
Budget looks to extend fixed rate plans to stabilise market - 10/03/2008
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The budget looks set to offer hope for homebuyers, with Chancellor Alistair Darling introducing plans for fixed rate mortgages over 25 years.
This would break with the tradition of fixed rate mortgages being only available for short terms, usually five years, or longer but at a higher rate. The UK is alone in this practice as most European countries offer longer term fixed deals.
Such a move would help stabilise the economy as borrowers are at risk from fluctuations in interest rates. This has put people off borrowing and has helped contribute to a slowing housing market. In addition, borrowers with strong credit histories will get access to “gold standard” loans that will offer better rates than those with poorer records.
However, lenders are under no obligation to offer such plans and will have to be encouraged by the lure of a new loans system. Mr Darling wants to encourage lenders to use covered bonds which covers them in the event of an issuer collapse, although this could be thwarted as the credit crunch has made lenders wary of investing in mortgage based securities, such as these bonds.
Bankers are also sceptical because grading loans and offering better rates to more reliable, or possibly wealthy customers, will create a two-tier housing market, with first time buyers being helped little by a move that helps those with existing strong credit history.
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