In a bid to make the UK housing market less volatile. Alastair Darling has introduced plans to encourage 25 year fixed rate mortgages. The plan also involves giving kite markets to mortgages depending on how risky they are. Fixed rate mortgages will attract a better rating and so it is hope easier for the mortgage lender to raise money on the capital markets.
However, groups such as the Council of Mortgage Lenders have criticised the plan saying that it could create a two tier mortgage market, with some first time buyers finding it very difficult to get a mortgage because they do not have sufficient income for the ‘reliable mortgages’
Also it is not clear whether homebuyers will actually want to take out 25 year fixed rate mortgages. In the past there has been little demand for long term fixed rate mortgages. Typically the best fixed rates on long term mortgages are 6% compared to 5.25% on shorter rate mortgages