Hopes over long term mortgages

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Measures to increase the availability of long-term mortgages and to grade home loans according to risk are expected to be announced in the Budget this week.

Chancellor Alistair Darling is expected to outline plans to make fixed rate mortgages for 10, 20 and even 25 years cheaper and more readily available for consumers.

The Government hopes the move, which was originally announced by Prime Minister Gordon Brown last summer, will help more people into home ownership by providing greater stability of mortgage repayments.

Mortgages that are fixed for 25 years are already available but only six lenders offer them.

The loans also tend to be more expensive than shorter-term deals, with rates of just below 6% typical, while the best deal available is 5.5%, compared with a market leading rate of 5.2% for a two-year fixed rate mortgage.

Mr Darling is expected to outline moves to enable lenders to make better use of so-called covered bonds to back the deals.

Covered bonds, which are widely used in Europe but little used in the UK, should help lenders offer more attractive rates to borrowers, while also helping them better match their own borrowing and lending over the longer term.

But the mortgage industry has questioned whether the move would significantly reduce the rates lenders charge on long-term fixed rate deals, while there are also doubts about the level of consumer demand there is for the products.

Mr Darling is also expected to announce plans in the Budget for mortgages to be graded according to risk, with the least risky home loans given a 'gold standard' kitemark.

The move aims to kick-start the wholesale money markets by providing investors with greater reassurance about the quality of the loans they are taking on.