Banks push for cheaper mortgages

Short-term loans may add to property market volatility

UK homebuyers could take out US-style long-term fixed-rate mortgages if a new initiative gets the go-ahead.

The loans would allow homeowners to fix their rate for up to 30 years, and redeem early without penalty.

The plan involves setting up a European Mortgage Finance Agency (EMFA) - modelled on the Fannie Mae agency in the US.

The proposal, drawn up by leading banks, comes ahead of a government study into long-term fixed loans.

European market

Northern Rock in the UK, along with major European banks Crédit Agricole of France and BBVA of Spain are offering support to the idea, according to newspaper reports.

Supporters of the proposed pan-European agency, which would allow banks to borrow money at a lower interest rate than they could individually, are hoping the European Commission will back the idea.

EMFA would be similar to the US Fannie Mae scheme, which offers home loans at between a quarter and two-fifths of a point less than market rates.

A UK Treasury-sponsored report into long-term mortgages is to be published shortly.

The review by David Miles, professor of finance at Imperial College, is investigating the feasibility of introducing long-term fixed rate deals in the UK.

The UK mortgage market is currently characterised by cheap short-term deals and variable rates.

Experts believe this creates unnecessary volatility in the UK housing market, in contrast to mainland Europe, where 10 and 15 year deals are commonplace.