Britain's mortgage market needs overhauling to ensure consumers get the best deals and make long-term fixed-rate loans more readily available, thus reducing housing market volatility, a Treasury-sponsored report said on Friday. Recommendations in Professor David Miles's final report include requiring lenders to make all their mortgage rates available to all customers, not just new ones, and a range of measures to lower the cost to lenders of providing longer-term, fixed-rate deals. Most British home owners have either variable-rate mortgages or loans fixed for up to five years, whereas in the rest of Europe and the United States 25- and 30-year mortgages are much more the norm. Chancellor of the Exchequer Gordon Brown, saying that much of the economic instability afflicting Britain in recent decades was down to gyrations of the property market, charged Miles last year with exploring why the market for fixed-rate deals was so underdeveloped in Britain.
Miles said this did not mean Britain's mortgage market, which he described as "innovative and dynamic" was not working. "(But) if implemented, the recommendations would improve the UK mortgage market by getting better information and advice to customers, making the pricing of mortgages more transparent, removing potential obstacles to the emergence of new products and improving the ways in which fixed-rate mortgages can be funded," he said. His recommendation that the Financial Services Authority, Britain's financial watchdog, should require lenders to offer all rates to everybody was already being done by some lenders, but not all, he said.
GIVE PEOPLE THE FACTS
The report also says the FSA should require lenders to send a leaflet to borrowers with their annual statement each year, laying out all their mortgage rates. It wants the government to publish literature advising people about the costs of mortgages and remortgaging to another lender. Miles said borrowers needed to be better educated about the true costs of a mortgage over the full length of the loan and not to be so easily seduced by loans offering deep discounts in the early years. "There are good reasons to think that if the UK market worked better many more mortgages would be at rates that were fixed for periods longer than is currently common," the report says. "More borrowers would then be insulated from the impact of unexpected changes in interest rates at times when the stock of their debt was large relative to their incomes and when the impact of charges in interest rates on the affordability of their mortgages is great." But, he said, fixed rates were not the only answer. Borrowers could also buy an interest rate "cap" with their mortgage to guard against large rises in interest rates. For its part the government needed to treat such caps as insurance policies for tax purposes, thus not taxing any benefit they provided.///