Darling reveals mortgage plans

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by Kay Murchie

Earlier this week, Chancellor Alistair Darling unveiled plans to revive the ailing home loan market after concerns that the UK is heading for a housing slump.

The Chancellor has said that fixed mortgages for 25 years will become the norm. He said fixed-rate mortgages are popular, however, the majority of them only run for about 5 years.

Recent figures have discovered that approximately 65% of mortgages are taken out at fixed rates, but usually lasting for only 2, 3 or 5 years. There are only a few deals available on the market currently for cautious homeowners who want to fix their mortgage costs for a long period of time.

Mr Darling plans to encourage the launch of mortgages fixed for up to 25 years, providing more security for struggling homebuyers and added he wanted to see ‘greater availability of affordable long-term fixed-rate mortgages’.

In his first budget next month, he will encourage lenders to offer fixed-rate mortgages lasting up to 25 years at reasonable rates.

Mr Darling said for many households, particularly those on low incomes, fixing the level of mortgage repayments for several years makes real sense.

He added he wants penalties reduced if borrowers want to get out of their mortgage early.

Nationwide, Britain’s largest building society, is the only major UK lender to offer a 25-year fixed-rate deal. It had to scrap its first offer after just 5 weeks because it proved too popular when it was launched in April 2007.

It subsequently re-launched the deal allowing homeowners to fix their mortgage at 5.98% until 2033. These types of deals take the uncertainty out of mortgages which can cripple borrowers if rates rise significantly.

Other lenders offering 25-year fixed rate deals include Cheshire Building Society, Co-op, Kent Reliance, Manchester Building Society and Norwich & Peterborough.

This is not the first time the Government has considered long-term mortgages. Back in 2004, leading economist David Miles produced a report for Gordon Brown which said there are a number of potential legislative and regulatory barriers to the cost effective funding of longer term fixed-rate mortgages.

Concern has been expressed by the Financial Services Authority about the 1.4 million homeowners in Britain whose cheap fixed-rate mortgage deals are due to expire this year. Many of these people will find it difficult to find a new affordable mortgage deal as lenders become stricter about who they lend money to.