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Snap Out Of It, Mr Shapps!


When I read that Mr Shapps, who I actually like, had made a speech within which he called for 30 year fixed rate mortgages I must admit my shoulders sagged a touch.

My first reaction was if that was the best idea he can come up with then we are all up the proverbial creek without a you know what. In reverting back to an oft tried and never achieved call for 30 year mortgages we suddenly saw that actually, no one in power at least, seems to really get the issues.

Alastair Darling said much the same thing in 2007 and was duly obliged by a couple of lenders offering 25 year fixes at the 6.39% level. Of course there was not much take up due to the onerous penalties in the first 10 years and the additional cost, but for those that did, well it’s looking a tad expensive now.

But still, Grant Shapps said to the Building Societies Association that “Longer-term mortgages – possibly as long as 30 years – could help families on tight budgets know exactly where they stand when they are buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.”

As with any advice, the problem is that for most real clients, a 30 year fix is probably not the best advice. Budgeting is all very well, but as those tied in to the previous offerings will no doubt tell you, it sometimes isn’t all it’s cracked up to be.

In today’s ever-changing times with a transient work-force, births, divorces and the like, some kind of flexibility is required and having a long-term fix with expensive tie-ins means that those who are looking to move are tied to the lender they took the product with. This may not be the best lender when they need to move or borrow more.

Mr Shapps also suggested that to get over the redemption penalty issue, lenders should cost them in to the interest rate. Ok in theory, but in practice this just makes the differential more expensive. Just a quick glance at 10 year fixes available at present, (and there are only 4 lenders I can see offering 7 such products), there is only one Skipton, who offers this at 85% LTV at a rate of 5.85%. Penalties are a massive 6% in the first 5 years.

The challenge for lenders, as always, would be to produce a cost-effective very long term fixed rate, with flexibility built in. Then you may see demand for such products rise, although not by a great deal.

So when you actually sit in front of a client and explain the pros and cons then go through the cost differentials, the majority, although not all, will opt for a cheaper and less onerous 5 year product.

My final question is what exactly, by calling for the introduction of such products, does Mr Shapps hope to actually achieve? It will not cure the issues we have in the property markets; it will not mean more homes are being built; it will not help a workforce that may need to move to where the jobs are and it most definitely help increase flexibility to deal with whatever life throws at you.

If anything it could stagnate the market further and mean that those who are on a tight budget end up paying more than they actually need to.

Whilst a healthy market undoubtedly needs a good mix of products to cater for every aspect of personal choice, there are surely more important matters to be concentrating on. Overhauling Stamp Duty, for example, would be a much better place to start.

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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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