30 November 2004
The cost of taking out a long-term fixed-rate mortgage could fall if changes are announced in the Pre-Budget Report this week.
Altering the rules on fixed-rate mortgages is one of the options facing Chancellor Gordon Brown when he makes his report on Thursday.
Mr Brown will respond to professor David Miles's report into the mortgage market, which examined obstacles to long-term fixed-rate mortgages.
The financial services industry is seeking changes to address these obstacles, along with changes to inheritance tax, stamp duty and savings limits.
Very long fixed-rate loans are commonplace in most of Europe and the US, but rare in Britain.
Professor Miles's study concludes this is because they currently cost too much.
"The reason borrowers don't like long-term fixes is because they are expensive. This is due to the high cost of the derivative contracts involved," said Ray Boulger, of mortgage lender Charcol.
"If the government were able to issue a new kind of derivative, capable of bringing down the cost, or at least allowing lenders to reduce early repayment penalties, it would be a very consumer-friendly move.
"There is a demand for such a market, but it takes government impetus to get a new market going. If the Treasury were able to sew the seeds then the institutions would soon follow."
Lenders are also calling for other changes to aid the housing market including altering stamp duty - a tax paid on properties worth more than £60,000 - and to inheritance tax to reflect rising house prices.
"High property prices - which in themselves have deterred many first time buyers from getting onto the ladder - have also meant increasing numbers are being hit with this extra burden," explained David Bitner, head of product operations at Bradford & Bingley.
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