Long-term fixed rate mortgages risky because of life uncertainty

Buyers tempted to take out a long-term fixed rate mortgage after chancellor Alistair Darling indicated in this week’s budget that action might be taken in future to promote them should be on their guard.

A number of experts have warned that the certainty that Mr Darling pointed to as the benefit of opting for a mortgage with the interest rate fixed for ten years or more is precisely what is missing.

“Uncertainty is the key deterrent,” Andrew Haggar of Moneyfacts told the Daily Telegraph, pointing to the unpredictability of life circumstances over such a long period of time.

“While borrowers can insure against unemployment and illness, people are still wary of tying themselves to a fixed rate for an extended period of time.”

Nici Audhlam-Gardiner, director of mortgages at Abbey, agreed.

“So much can happen in a quarter of a century, both to a customer’s circumstances and to the economy. While these very long term deals may be suitable to provide long-term stability for a small number of customers – they will not be suitable for all,” she said.

Tags: budget, unemployment, extended period, Telegraph, interest rate, Business Finance, deterrent, long period

People advised to stick to credit purposes

Consumers should use financial products for their “right purposes”, according to Sainsbury’s Bank.

Steve Baillie, head of loans at the bank, explained that using personal loans, credit cards and overdrafts for the correct purposes will help consumers avoid getting into debt without “anything to show for it”.

“Buying cars with overdrafts or buying cars on credit cards can be very expensive business if you look at the APR. And also, you’ve got to look at the lifetime value of the product that you’re buying,” he said.

Purchases with a short life over a long period should not be considered, he continued, before urging consumers to do their “research” in advance of taking on any new commintments.

Credit Action revealed that in September this year total spending grew by £11.2 billion, while secured lending was up by £9.8 billion in the month.

Similarly, there was total growth over the month in consumer credit lending to £1.4 billion.

Tags: long period, consumer credit, credit, overdraft, Steve Baillie, Unsecured debt