Don't deny borrowers the right to choose a mortgage to suit their personal needs

THIS COLUMN has always been in favour of tougher controls on life insurance salespeople, on mortgage providers, fund managers and on just about every other member of the financial services sub-species. Many of those operating in this industry have barely left their former double- glazing occupations - and attitudes - behind them.

That's why protecting consumers is one of the key ingredients of this section. So why is it that I am dismayed by a growing campaign to ban mortgages which have penalties extending beyond the fixed period of the deal itself?

This is the kind of "penalty overhang" loan which, for example, offers a cheap two-year fixed rate, but then commits you to stay with the same lender for a further two years after that rate ends.

First, a confession. Back in September 1994, I took out a four-year fixed rate mortgage. During this period, I knew exactly what my monthly payments were and could plan accordingly.

I admit, as both variable and fixed mortgage rates dropped almost to the level of my own fix (and briefly, lower) within that period, I questioned the wisdom of this move. Even so, I still did well overall.

Back in mid-1994, "penalty overhang" mortgages were not common. But what if they had been? In practice, anyone with a mortgage like mine would have been committed to a further year or two at their lender's prevailing variable rate. They wouldn't have been able to pick up another cheap fix or discounts - but with variable rates as low as they are today, does that really matter?

And what is wrong with first-time buyers fixing as cheaply as they can for a year or two so that they can find their feet, do their home up and then move on to variable payments for another couple of years when they can afford them more easily?

The problem is, unfortunately, that some borrowers, for whom a building society account is the height of risk-taking, think the aim of a fixed rate is to beat the market - and they have just the skills to do it. They don't.

Or, despite having just enjoyed a fixed rate up to 2 per cent lower than the prevailing variable one, they baulk at paying more when the fix ends.

The increasingly-fashionable refrain is that it is unfair for a lender to sign up borrowers to a five-year agreement if the actual rate for three of them is not known in advance. Fair enough: except that by banning "penalty overhang" mortgages, we also ban the right of borrowers to find the cheapest rates to suit their own needs.

For example, one of the better rates on mortgages with a 95 per cent loan-to-value comes from Halifax. It charges 5.45 per cent and has no penalty beyond the three-year fixed period. By contrast, First Mortgage charges 3.99 per cent - except that redeeming before five years involves a penalty of five months' interest.

A 1.5 per cent differential means a saving of almost pounds 2,700 on a pounds 100,000, 25-year repayment mortgage over the three year period - as long as you understand the consequence of your decision: leaving early will cost you dear.

At the end of the day, however, that is for borrowers to decide, not regulators. As long as the facts are clearly explained, written information is easy to understand and available, the pros and cons are discussed and proper advice, relative to a person's circumstances, is given. The aim should be to regulate lenders and their advisers tightly, not ban a particular product.

If the campaigners win, it will mean less choice and worse deals for some consumers. No-one should be in favour of that.