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LENDERS have given a mixed welcome to plans to launch 25 year to 30 year fixed rate mortgage deals.
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The European Mortgage Finance Agency, backed by a group of continental banks, is set to offer homebuyers the chance to fix rates for up to 30 years, with no penalties for moving lender at any time.
It follows calls by the Chancellor Gordon Brown for lenders to introduce long term fixed rate mortgages, in a move aimed at bringing stability to the housing market.
The UK's largest lender, the Halifax, believes long term fixed rate deals have a 'definite role' in the marketplace.
Jo Gill, a spokeswoman for the bank, said: 'There is room for this type of product, although ultimately consumer interest will drive demand. It is likely to supplement rather than supplant existing mortgage deals.'
Yet with experts predicting rates of between 6.5% to 7% for a 25 year fixed rate deal, it could prove too expensive an option to appeal to many borrowers.
Currently short-term discount and tracker deals in the UK are around 3.5%, while short-term fixed rates typically range from 4% to 5%.
David Bitner, head of product operations at The MarketPlace, part of Bradford & Bingley, believes that penalty free, long term fixed rate mortgages will need to be priced more competitively to succeed.
'Long-term rates pitched at around 7% would simply be unappealing for the majority of borrowers, who are used to choice and competitive rates.
'It is difficult to see why borrowers would suddenly want to switch to a higher priced product even if it provides long-term protection,' he added.
Ray Boulger, senior technnical manager at Charcol, is also sceptical. 'There is a market for long term fixed rate mortgages - just not at this rate,' he said
'If you are nervous about future rates, Cheshire Building Society's
25 year fix at 5.48% would be a far better option, despite being tied in for the first few years.'
In May this year lender Leeds & Holbeck launched a 25 year fixed deal, at just 5.39%, which quickly sold out.
The bank believes there is a clear place for longer term fixed rates on the market.
Spokesman Daniel Jones said: 'Long term fixed rate deals have the potential to stabilise the housing market, depending on a number of factors, including their popularity among consumers.'
Supporters of long term fixed rate mortgages point to their widespread popularity in the US, where the bank rate is currently just 1%, and mortgages are typically between 5% to 6%.
Yet the US mortgage market is far more standardised than the UK market, which was recently voted the most diverse and competitive mortgage market in Europe by the European Mortgage Federation.
Jo Wiggins, a spokesman for the Nationwide said: 'Although we welcome anything that increases choice for consumers, in the UK we are used to great choice and flexibility. Encouraging people to opt for long term fixed rates such as these is like trying to change customers' mindset.'
Either way it's a balancing act. Opting for the new 25 year or 30 year fixed rate mortgages could protect you against future rates rises, but it is impossible to predict what rates will be doing in five years' time, let alone 25 years' time.
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