The trend of homeowners opting for longer-term mortgages has significantly declined, despite new entrants in the UK mortgage sector advocating for European-style home loans as a potential solution to the housing affordability crisis.

Data from UK Finance reveals that only 390 new fixed-term mortgages exceeding five years were issued in August, a notable drop from 1,690 in March of the previous year. This category constituted a mere 0.48 percent of all newly issued loans.

Currently, there are 12 banks providing a range of long-term mortgage options, including fixed rates for seven, ten, and 15 years from prominent high street banks, along with 25 to 40-year fixed rates available from newer market players.

In contrast, British homeowners tend to favor two or five-year fixed-rate mortgages, which represented 89 percent of new loans in August. This behavior differs from homeowners in countries like Germany, France, Denmark, and the United States, where extended fixed-rate mortgages are more prevalent.

Within the last few years, several lenders have introduced European-style mortgages, often backed by life insurance firms and investors rather than traditional bank funds, operating under the premise that competitive rates would attract borrowers.

The specialist lender Kensington started offering fixed-rate loans with terms of 11 to 40 years in November. Additionally, new banks like Perenna and April have introduced similar products in the last year. April provides five to 15-year fixed rates, while Perenna offers fixed periods spanning from 10 to 40 years.

Lewis Shaw from Shaw Financial Services stated, “Interest rates on long-term fixed mortgages are considerably higher than standard rates, and considering UK buyers’ sensitivity to rates, they are hesitant to commit to lengthy fixed terms when an interest rate decline is anticipated within the next 18 months.”

For instance, Perenna’s 40-year fix starts at 5.5 percent, while Kensington’s begins at 5.84 percent, in contrast to five-year fixes initiating from 3.75 percent. Santander offers the lowest ten-year fix at 4.49 percent.

Shaw also mentioned that potential buyers may be cautious about newer lenders in the market.

Politicians and economic experts have proposed longer-term mortgages as a remedy for the housing affordability crisis, where the average property price in England now equates to 8.26 times the average income. Such mortgages would permit homebuyers to secure larger loans with reduced exposure to fluctuating interest rates.

Economist David Miles endorsed longer-term fixes in a comprehensive review of the mortgage market in 2004, while they were echoed in the Conservative Party’s election manifesto in 2019.

Despite these endorsements, long-term loans have not gained substantial traction, mainly due to their higher costs and lesser flexibility compared to shorter-term options. Traditionally, they have been associated with significant early repayment charges throughout the term of the loan, although newer products may offer better flexibility. For example, Perenna only enforces early repayment charges for the initial five years, and there are situations, such as when selling a property, where these charges do not apply.

According to Shaw, “Long-term fixed-rate products may see an increase in popularity when interest rates decline. They represent solid options that genuinely offer flexible solutions. Nonetheless, given the recent escalations in interest rates, most consumers are likely to continue pursuing the best current rates rather than adopting a longer-term perspective.”

Arjan Verbeek, CEO of Perenna, remarked, “It is evident that we are still in the early stages of integrating long-term fixed-rate mortgages into a market that is in urgent need of innovation and diverse options for borrowers. The prospect of decreasing interest rates is leading many potential borrowers and those looking to remortgage to hesitate before opting for a long-term fix.”