Fixed rate mortgages for all? – The Chancellor turns mortgage salesman

Today I learn that the Chancellor has become a mortgage salesman again. He is lecturing us to take long term mortgages at fixed rates. Has no-one reminded him that his government has made mortgage selling a regulated activity? I doubt if the Chancellor has bothered to fix himself up with the necessary regulatory approvals to start selling the fixed rate proposition so actively.

Is he aware that mortgage salesmen need to know their client? Does he grasp at all that long term fixed rate mortgages may work out dearer for some people? They do not make much sense if you plan to move on and repay the mortgage in a relatively short time period. The relative cost of floating rate and fixed rate mortgages can vary sharply as interest rates change. In a period of falling interest rates – which many think we are now in – locking yourself into a fixed rate mortgage may not be a good idea.

I hasten to add I am not a regulated mortgage salesman either, so anyone needing a new or different mortgage should go to a professional to seek advice geared to their own circumstances. This site general views and comments, but avoids individual advice on savings, borrowings and investments as these do require professional (and regulated) advice based on knowledge of the individual’s circumstances.

I find it extraordinary that our Chancellor is making this further foray into the world of lending and borrowing, after his last disastrous one just before the run on Northern Rock. Regular readers of this site will recall that I was very critical of his famous speech about how lending institutions had behaved irresponsibly, and would not in the UK be bailed out. His resolution to avoid helping the banks lasted but a few hectic days, before he bowed to the need to guarantee all deposits in all banks under pressure in UK jurisdiction!

He should also remember that as the taxpayer’s representative and principal bank manager to Northern Rock he is no longer above the fray on mortgage bank products. I just hope he has remembered to ask the management of Northern Rock to make sure they have plenty of the types of mortgages he favours available for their customers, before journalists come asking difficult questions about that.

On second thoughts, isn’t the government’s close involvement with a mortgage bank another very good reason why the Chancellor should have said nothing about mortgages to avoid any conflict of interest?

The main reason he seems to be offering us his thoughts is fear. He is afraid there will be a sharp fall in house prices. He does not seem to understand that it is in a way government policy to try to bring house prices down, as they are constantly telling us housing is not affordable and needs to become more affordable. He hopes that if more people take out fixed rate mortgages, more people will be able to pay the mortgage through difficult times. The only thing to be said about that is, at least he realises he is presiding over tricky times. Maybe spending a bit more time thinking about how to unstick them would be a better way to proceed. Lower interest rates will help. Lower interest rates make fixed rates a worse deal!

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One Comment

  1. Steve
    Posted March 23, 2008 at 6:43 pm | Permalink

    Yes, as a senior manager of a mortgage broking service I can confirm that anyone offering residential mortgages in the UK must be qualified (quite a lengthy process), and must also complete a thorough client fact find to ensure the most appropriate product is offered.

    There are though some exceptions to regulation. Some buy to let and commercial mortgages are not regulated (at least not yet).

    Anyone offering mortgage products must make certain that clients understand these vital points and not hide it in the small print.

    Regulation has become so strict I am not permitted to make comments about any other financial services business. Any concerns I may have must be reported to the Financial Services Authority (FSA) via my mortgage network.

    So apologies now, I can’t possibly comment about Northern Rock, the FSA or I guess the Government!

    Best wishes

    Steve

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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