Millions of mortgage holders will be protected from the nightmare of constant changes in interest rates if reforms promised by Alistair Darling take effect.
The UK now has one of the highest levels of home ownership in Europe but rising prices are making it increasingly difficult for young couples to buy their first home. Those who take out mortgages to the upper limit of what they can afford are then at risk if interest rates rise.
The Chancellor announced he is working on a plan that will make it more attractive for banks and building societies to offer long-term fixed mortgages.
If the plan comes off, it means young homeowners will be able to look forward to monthly mortgage payments that remain fixed for 10 years or longer.
"Buying a home is probably the biggest investment people make in their lives," Alistair Darling told MPs. "Fixed rate mortgages can offer more certainty. And I want to see more fixed rate mortgages, not just for two years but 10 years or even longer. I will bring forward proposals to help lenders ensure that, if it is right for them, more people can fix their mortgages as a matter of routine."
But others warned that fixed term mortgages can be a huge risk for borrowers. Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said: "Many long-term mortgages carry punitive "early repayment charge" tie-ins for part or the whole term of the product. If a borrower's circumstances change and they have to come out of a deal, it will probably cost them dearly."
Others criticised the Chancellor for saying nothing about the stamp duty paid by first time buyers. Clare Hartnell, of Grant Thornton, said: "The lack of an announcement on stamp duty is particularly surprising given the Conservative's proposal to exempt anyone who buys their first home for under £250,000 from stamp duty land tax."
The Government is aiming to accelerate house building, as a long-term strategy for bringing prices within a range that more first time buyers can afford.
Mr Darling said the number of homes increased by 185,000 last year, the largest increase for nearly 20 years. There are two million more homeowners than there were 10 years ago, and 70 per cent of homes are privately owned. By 2016, 240,000 new homes a year will be coming on to the market. Altogether, three million new homes are to be built by 2020.
But Peter Bolton King, Chief Executive of the National Association of Estate Agents. warned: "It is not just a numbers game – it's about having the right homes in the right places. It will take an extremely long time for the effect of the Government's planned new homes to be felt."
The Government will also spend £4bn over the next three years to help people in poor quality housing renovate their homes, and bring in measures to induce the owners of empty properties to sell them.Reuse content