Treasury officials weigh 40-year mortgages to help first-time buyers

Long-term fixed-rate deals are popular in the Netherlands and Denmark and protect borrowers from interest rate spikes

Andrew Griffith said he is ‘definitely interested’ in longer term mortgage deals to help first-time buyers (PA Archive)

Ministers are considering a shakeup of lending laws that would encourage banks to offer 40-year mortgages to help first-time buyers.

The long-term fixed-rate deals, which are popular in the Netherlands and Denmark, allow borrowers to pay a single rate for the entire loan.

They shield mortgage-holders from interest rate spikes such as those currently piling pressure on homeowners.

City minister Andrew Griffith met last week with MPs, Bank of England officials and lenders offering 40-year fixed mortgages.

Mr Griffith told The Telegraph he is “definitely interested” in the product as part of the solution to help more first-time buyers onto the property ladder.

“If a mortgage really is fixed [for the entire term] then the stress tests of affordability aren’t as relevant as there is no chance of payments rising,” he said.

Discussions are thought to be at an early stage, while some lenders fear takeup of the long-term mortgages would be low while interest rates remain at current highs.

Homeowners with typical two-year or five-year fixed-rate mortgages are facing huge increases in their monthly repayment costs as the Bank of England hikes interest rates to control inflation.

Last month the central bank hiked the base rate by 0.5 percentage points to 5 per cent, causing mortgage rates to spike.

And the Bank of England’s monetary policy committee will meet next week to decide on further rate hikes, with another 0.25 percentage point increase expected.

The average two-year fixed mortgage rate hit 6.86 per cent on Wednesday, with five-year deals standing at 6.36 per cent.

Rates are now higher than the levels seen during a peak in the wake of LizTruss and Kwasi Kwarteng’s disastrous tax-cutting budget.

And homeowners have been warned the rising rates will lead to a hit to disposable incomes after the Bank of England said rising interest rates could cost one million borrowers an extra £500 a month by 2026.

The average homeowner is facing an increase in monthly mortgage payments of around £220 when renewing their fixed-rate deals, while another half a million households could see payments climb by £750 a month or more, the Bank has said.

The Treasury said longer term mortgage deals have been on the market “for a long time” and encouraged customers “seeking the additional security of these products to shop around”.

A spokesman said the best way to help borrowers is to bring down inflation and highlighted the government’s mortgage charter, agreed with lenders to support households with soaring payments.