Nationwide launches 25-year fixed-rate mortgage

by Gill Montia

Story link: Nationwide launches 25-year fixed-rate mortgage

Following the Chancellor of the Exchequer’s recent pledge to encourage the provision of long-term fixed-rate mortgages, Nationwide has relaunched its 25-year fixed-rate mortgage.

The relaunch aims to provide a mixture of stability and flexibility for borrowers who will be able to fix their interest rate at 6.39% for the full 25-year term.

Currently short-term fixed-rate mortgages are taken out by the majority of homebuyers but the Government is keen to see lenders offer long-term fixed-rate agreements because it believes they will help to stabilise the UK housing market.

Short-term fixed-rate mortgages, with terms of two or three years, account for a substantial proportion of mortgage borrowing but debt advisers are concerned for the large numbers of people who took out short-term fixed-rate mortgages when rates were low and will soon have to meet the cost of the five base rate rises which have taken place since last August.

The Nationwide believes that consumers are keen fix mortgage interest over the long term.
However, 25-year fixed-rate mortgages can be expensive.

Some experts take the view that the UK is near the top of the interest rate cycle and that anyone taking up a 25-year agreement now could pay dearly for it.

In the case of the Nationwide product, borrowers who wants to switch provider within 10 years have to pay a substantial penalty.

Taking a different view, Abbey has recently stated that its borrowers have shown a preference for short-term fixed-rate mortgage agreements and that it believes many may be reluctant to commit to a much longer fixed-rate period.

The latest statistics from the Council of Mortgage Lenders show that 89% of first-time buyers and 74% of home movers opted for fixed-rate mortgages in May of this year.