Mortgages

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By Emma Tyrrell

We Brits may not have an international reputation for being footloose and fancy-free, but when it comes to mortgages that's exactly what we are, especially when compared to our US and European cousins.

While the Yanks and those continental Europe-dwelling chaps like to go for long-term mortgage deals that fix their homeloan repayments for up to 25 years, here in Blighty we're more wary of being tied down.

The Government-commissioned Miles report last year recommended that lenders should try and encourage us to take out long-term mortgage deals, but so far we've shown a stubborn lack of interest in paying more for greater security.

A few lenders dipped their toes in the water last year, trumpeting Miles-style 25 year fixed rate deals, only to withdraw them a few months later due to lack of interest from borrowers. There are now only two lenders - Cheshire Building Society and Leeds Building Society - offering 20 and 25 year fixed rates, with a few hundred borrowers between them. Both lenders, together with Northern Rock, also offer a 15 year fix, and several others offer ten year fixes.

Where the market for lifetime mortgage deals has grown is not in fixed rates, but in the variable rate tracker deals. That may not be quite what the powers that be had in mind when trying to push us towards US-style mortgages, but it does mean better value for those borrowers who don't want to switch deals every few years

Smile is the latest to release a mortgage that will track the Bank of England Base Rate (currently 4.5 per cent), plus 0.45 per cent, for the entire lifetime of the loan, with no penalties for early repayment or switching. But the deal, which has a current payable rate of 4.95 per cent, is not the cheapest long-term tracker around.

Saffron Walden Building Society has a lifetime tracker which follows the BoE base rate plus 0.3 per cent, also with no early repayment penalties, while mortgage broker Charcolonline has an exclusive deal with Clydesdale Bank, tracking the base rate plus 0.19 per cent. This latter deal gives a current payable rate of 4.69 per cent, not that much higher than the best short-term tracker deals.

Alliance & Leicester, for example, is offering a two year tracker which follows the base rate less 0.11 per cent, giving a current payable rate of 4.39 per cent. But after the two years, it reverts to a less attractive base rate plus 0.75 per cent for the rest of the mortgage. You're also tied in for the first two years of the mortgage, whereas with the Clydesdale deal you can switch or redeem the loan at any time without penalty. The Alliance & Leicester deal does have flexible features, however, such as the ability to overpay, underpay and take payment holidays.

Longer-term deals tend to appeal less to rate tarts, such as myself, and more to those who can't face the idea of shopping around for a new deal every few years.

Borrowers who are always on the lookout for the keenest deal, and are happy to switch regularly to get it, will tend to prefer short-term mortgage deals, as at the moment these are the cheapest.

But those who lack the time or inclination to become fully paid up rate tarts may be better off with one of the long-term trackers than with a traditional short-term deal. At the end of a short term fix or discount period they'd be moved onto a less attractive rate, often the lenders standard variable rate, which can be pretty pricey.

If you do go for a long-term tracker, most will allow you to switch at any time without penalty, but as their appeal is largely for those who don't intend to switch, it makes sense to choose wisely between them at the outset. Most, including the Clydesdale deal through Charcolonline, will allow you to make overpayments if you need to, but if you think you might need more flexibility, such as the ability to underpay or take payment holidays, you'll need to pay a slightly rate.

The new Smile deal, at base rate plus 0.45 per cent, offers these fully flexible features, as does Northern Rock at base rate plus 0.49 per cent, and Clydesdale (different deal) also at base rate plus 0.49 per cent.

The two long-term fixed rate offers from Cheshire Building Society and Leeds Building Society offer much less flexibility, but do give rate security for those afraid of medium-term rate rises.

The Cheshire deal, which offers a fixed rate of 4.99 per cent for 15, 20 or 25 years, is more keenly priced than the Leeds offer, fixed at 5.99 per cent over the same periods. With these long-term fixes, however, come long-term tie-ins.

The Cheshire 25 year fix, for example, ties you in completely for the first six years. After that you have a redemption window every two years until the 18th year, when you can at last switch or repay the mortgage penalty free if you want to.

Essentially the long-term/ short-term debate comes down to the type of borrower you are - someone prepared to settle for a good (but not shoot-the-lights-out good) rate which lasts the distance, or someone who's prepared to put in the time chasing the keenest possible deal.

Those seeking the ultimate security of long-term fixed rates are still few and far between, but if interest rates start to rise in the medium term such deals may become more attractive. Some market-watchers fear that, despite talk of short-term rate cuts, interest rates are likely to go up in the medium term. If that happens we may look back on today's long-term fixed rate deals and wish we had been a little more keen to be tied down.