Nationwide re-launches 25-year fixed rate mortgage

Nationwide has relaunched its 25-year fixed-rate mortgage, after the Government announced it wanted to see more long-term mortgages being offered.

Borrowers will be able to fix their interest rate at 6.39% for the whole 25-year term, with Nationwide saying their mortgage provides a mixture of "stability and flexibility" for borrowers.
But experts have warned that 25-year mortgages can be expensive and are not ideal for everyone.
"Fixed-rate 25-year mortgage interest rates are a little off the pace," said Andrew Montlake, director at mortgage brokers Cobalt Capital.

"People going for one of these 25-year deals may end up counting the cost soon. What's more, they are not flexible. In Nationwide's case if the borrower wants to switch provider within 10 years they have to pay a hefty penalty," Mr. Montlake added.

The Government is encouraging lenders to offer more long-term fixed-rate mortgages as they see it as key to bringing stability back to the housing market. They believe that long term fixed rate deals are a more viable alternative to short-term fixed-rate mortgages, which account for most current mortgage deals.
Debt advisers are worried that many short-term fixed-rate mortgages, taken out when rates were historically low, are coming to an end.

Due to this, many homeowners could soon have to meet the cost of the 5 interest rate rises which have happened August 2006. This could lead to increasing mortgage arrears and more instability in the housing market.

Fixing mortgages for a 25-year terms could prevent this situation from happening, but currently only a handful of lenders offer such mortgages.
But the Nationwide believes that there is strong consumer interest in fixing a mortgage over such a long term.

"Our experience is that the 25-year fixed rate has a place in the market and offers long-term stability and flexibility for borrowers who want to protect against fluctuations in interest rates," Stuart Bernau, Nationwide's executive director, said.

"The relaunch of this product follows a very successful uptake earlier in the year and will allow even more borrowers to benefit from the advantages it offers," he added.