Forum Brief: Mortgage Warning

A government-commissioned report has warned that a lack of awareness is resulting in many home owners paying too much for their mortgages.

Professor David Miles has published his interim report analysing why long-term fixed-rate mortgages currently account for only a small proportion of the UK market.

Forum Response: Council of Mortgage Lenders

Michael Coogan, CML director general, said: "The report concedes that longer-term fixed-rate mortgages are, on average, more expensive. But we agree that borrowers need to think not only about the cost, but also the level of risk in a long-term commitment, to get a true sense of the value of a particular deal.

"We know that consumers are very price-sensitive, but at the moment perhaps they are not so risk-sensitive. We have already recognised this issue for some time, and we recently helped the Financial Services Authority to introduce a new leaflet called You can afford your mortgage now - but what if?

"We also recognise that the cross-subsidy highlighted in the report poses a significant challenge for government and lenders alike. We now look forward to working with Professor Miles on this and the other issues to develop helpful recommendations for his final report.

"There is a wide spectrum of consumers in the UK, with a diverse range of circumstances and attitudes. Some will benefit most from long-term fixed rates, some from short-term fixes. Many will still opt for the pricing advantage (but accompanying interest rate risk) of variable rates. The important thing is to make sure that the mortgage market can continue to provide a spectrum of choices to fit individual consumers' needs."

Forum Response: Nationwide

Stuart Bernau, Nationwide executive director, said: "Existing customers should not be used to subsidise special offers for new business.

"Professor David Miles has now confirmed what we concluded two years ago: that it is 'an undesirable feature of the market' for loyal existing borrowers to subsidise new customers. If you were a regular in your local pub, for example, you wouldn't stay a loyal customer for very long if new customers were to get 50 pence off the price of a pint and you couldn't."