Mortgage: How the ‘next generation’ arrangement popular in Europe could slash your costs | Personal Finance | Finance

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Mortgage payments are often the most significant financial burden a person can take on, and many will be hoping to slash costs as much as possible. While usual arrangements allow Britons to fix their mortgage rate for two or five years, there could be other options on the table. One of these is a long-term fixed rate mortgage, which people could fix in for 30 years or more.

“If people are to try to fix this for a longer period of time using savings, there is a mismatch where we know what the savings rate is today, but we don’t know where it will be in five years time.

“The only way to break the cycle is to change the funding model which can be done, for example, through our approach. Not funding using savings, but funding using  covered Bonds.

“With a covered Bond, people can set the fixed-term of that Bond to the mortgage, and that Bond will live on and on for the length of that mortgage.

“They’re very safe and secure and pretty low risk for the lender as they’re backed by the mortgages but also backed by the bank.”

However, Mr Bell also highlighted this is not a new approach to mortgages, and has been used in other markets before.

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Denmark, he said, has used the long-term fix for hundreds of years since fires destroyed many properties, and people were looking for stability.

The option is also used in countries across Europe, including Germany and Holland.

The United States also has a very similar concept, with 80 percent of mortgages used in the country fixed for 30 years or more. 

But what is the driving force behind fixing a mortgage for a longer period of time?

Mr Bell continued: “The idea is that you can afford your mortgage today, but would you be able to afford it if rates went up to six or seven percent?

“A 30-year fix doesn’t have a Standard Variable Rate – which is usually a major concern for people – and it doesn’t have anything that is arbitrary or out of the control of Government.

“But it is important that there is a certain level of financial buffer there, although not as much as some more common lenders use.

“This has advantages, as it means people can borrow more, get on the property ladder earlier.

“It also helps people to buy the property they really want, rather than compromising. Many people often sell a home quicker because they want another room, a garden, more space to work from home. 

“The payments are fixed and locked in, but the products are flexible. So there are no long early repayment charges – we think five years for now, but tapering. These could change in the future.

“I like to describe it as letting the consumer decide when they want to remortgage, rather than forcing them.

“You choose when you want to remortgage when the time is right for you, or the market is right for you.”

Regardless of what option a person chooses, speaking to a mortgage broker is always considered a good course of action.

These individuals can offer a tailored and specialised approach to help people with their needs. 

Express.co.uk also spoke to Cassie Stephenson, who provided an additional perspective on long-term fixed products.

She said: “There is definitely a space in the market for these types of long term fixed products – it’s just a case of finding the right type of customer for the deal. It’s a move towards having personalised mortgages that are flexible depending on your circumstances.

“A benefit of having the same payment each month for the term of the mortgage is that it will allow easier budgeting and will remove the need to remortgage every few years when a fixed rate would normally end.

“However, it’s important to note that interest rates tend to be a lot higher when compared to typical two to five year fixed products as well as the set up fees alongside them. 

“Plus, if interest rates were to fall you could end up paying significantly more than with a more flexible option so it’s integral that customers fully understand the implications of these long term fixed options.

“Eligibility for these types of mortgage are also limited when compared to shorter fixed rates and if you’re planning on moving, paying off your mortgage in the next five to ten years they are unlikely to provide customers with the best deal.”





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