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PM sets out 25-year mortgage plans


Gordon Brown has announced in parliament his plans for the future - with an increase to housebuilding and a move to make long-term mortgages common both high on the agenda.

Outlining part of what is due to be in the Queen's speech in November, the new prime minister announced that his old stomping ground the Treasury, now under Alistair Darling, was now working with lenders to introduce 25-year mortgages.

He said: "The chancellor¦ will consult on creating a new regime for 'covered bonds' which will help mortgage lenders finance more affordable 20 to 25 year fixed-rate mortgages.

"He will report by the Budget on how to overcome other barriers preventing lenders from offering people long-term mortgages, including the case for changes to instruments used by the Debt Management Office."

Mr Brown also announced a stepping up of the government's house building programme so three million new homes will be built by 2020 - although it is predicted the number of households in the UK will have grown by 3.5 million by that time.

Following the speech to the House of Commons, the Treasury announced a series of initiatives to aid stability in the property market.

A Treasury spokesperson said: "The proposals will enable firms to take advantage of the special status that covered bonds, which satisfy certain criteria, are accorded under EU law, and will give lenders greater opportunity to participate in the covered bonds market, worth over ‚¬1.5 trillion in Europe, and ultimately enable them to finance more affordable longer term fixed rate mortgages."

The government is also backing a private members bill to increase the proportion of funds that can be raised in wholesale markets, so building societies can have greater flexibility in financing their mortgages. A review will also identify any further barriers to lenders aiming to raise funds in wholesale markets.

The Council of Mortgage Lenders (CML) has welcomed the initiative. CML senior policy adviser Rob Thomas said: "Innovations in mortgage funding are a key driver for new types of mortgages, so the Treasury is right to examine this area closely. But the issue is just as much about the consumer appetite for long-term fixed rates as about how they are funded.

"It is too early to say whether these announcements will create a significant shift in the design of the mortgage products of the future, but we welcome the government's willingness to look at the funding side and we also welcome the renewed focus on increased housing supply."

However, Lisa Taylor, analyst at Moneyfacts, has raised questions over the use of long-term mortgages.

"This seems to be a rather sweeping solution to solve the massive affordability crisis. Long-term fixed deals, those over five years have been found in the mortgage market for over two years, but still they remain only a very small fraction of the fixed deals available. Today only 141 products are offered with a fixed rate of ten years or more, with most of these being limited ten-year terms."

She added that the market is still in its infancy and showing signs of growth, but represents only a six per cent slice of the fixed-rate products available.