Euro banks aim for long-term fix deals

Homeowners will be able to fix their mortgage payments for 25 years and avoid costly penalties for redeeming early under plans by the European Mortgage Finance Agency.

The agency, backed by five major European banks, plans to offer longer-term, US-style mortgages with 25 or 30-year fixed-rate deals that can be paid back early without any early redemption charges. The banks are trying to win support for the agency from EU officials.

The development is likely to please British Chancellor Gordon Brown. He has been trying to find ways to make the housing market more stable and convince borrowers to stop jumping from one short-term deal to another.

The prospect of longer-term deals might be less likely to impress borrowers, as rates are predicted to be less competitive than today's shorter-term offers.

David Bitner, head of product operations at independent financial adviser The MarketPlace, Bradford & Bingley, says: 'North American-style fixed-rate deals could soon be available to European borrowers without any redemption charges. An exciting concept, were it not for the proposed interest rates of 6.5 to 7 per cent which are just too high. With short-term discount and tracker deals in the UK at about 3.5 per cent and short-term fix rates at between 4 to 5 per cent, long-term rates pitched at about 7 per cent would be unappealing for the majority of borrowers.'

Bitner says a typical borrower looking to borrow £100,000 on a repayment basis over 25 years on a fixed rate of 7 per cent for the life of the loan would pay £706.78 a month. Compare that with a lifetime tracker at 0.5 per cent above the Bank of England base rate, for which they would pay just £541.74 a month.