Can Brown fix mortgages?

First it was pensions, now it's mortgages. Chancellor Gordon Brown has turned his steely gaze on the property
market, promising a review of long-term fixed-rate mortgages because, he said, 'housing finance needs to become more
certain and planning more flexible'.

Long-term fixed-rate deals are already available in the UK, and they haven't proved popular - mainly because of their
severe early redemption charges.

In the US, lenders routinely charge just three months' interest on five- and 10-year loans paid off within the first three
years of the term. Compare this with Britannia's outrageous redemption charge of 360 days' interest on its 10-year loan,
which applies throughout the term.

Worse still, the charge is made at the lender's standard variable rate, rather than whatever rate the loan was fixed at, so
borrowers can't even calculate in advance what it might cost them to escape. They are still, in some sense, at the mercy
of interest rate movements.

'The reason there aren't more of these deals is because there is no demand for them,' says Ray Boulger of broker
Charcol. 'Standard Life's 25-year deal was the exception. It was very popular when it originally launched. But that's
because it offered the best five-year fixed rate of any loan around at the time, plus it allowed for penalty-free redemption
after five years. Most borrowers are unlikely to stay in any home for 25 years so portability is also an issue. Lenders say
their loans are fully portable but few people move from one home to another of equal value, so extra - or less - funding
will be needed.'

David Hollingworth of broker London & Country says: 'The income multiple needed to buy that next property might be
higher than the one the borrower originally needed. And the lender might not be happy to lend more. If that happens the
borrower can either walk away from the move, which isn't very likely, or go with another mortgage, which means
stumping up the redemption charge.'

Halifax says its loans are fully portable and borrowers in this situation - assuming there is no problem with income
multiples - would simply have to take out a top-up mortgage. But there's no guarantee what interest rate this top-up
would be charged at. 'It would depend on the borrower's circumstances and what products were available at the time,'
says Joanne Gill of Halifax.

Personal circumstances are another reason that fixing your mortgage for the longer term may not be wise. Relationship
breakdown or a change in employment status may mean what was an affordable loan over the longer term has now
become expensive compared with shorter term fixes and a smaller (or single) income.

It might also be more difficult to fit your lender's borrowing criteria if you want to move to somewhere unusual, or build
something yourself.

Lenders, however, are more positive on the prospect for long-term fixes.

'As little as 15 years ago, there were very few fixed rates of any length available. But now they account for around 26 per
cent of the mortgage market,' says Barry Naisbitt of Abbey National. 'So it may just be that people need longer to get
used to the idea. And while the Treasury has said it expects inflation to remain low, there's no guarantee that interest
rates will. So there's much to be said for having repayment stability for the lifetime of the loan.'

Naisbitt believes mortgage providers will have to look at building more innovation into products, though he declines to
say what form that innovation might take.

But if 'innovation' included greater flexibility over capital repayment, these loans might gain in popularity. At present
about half of all long-term fixed loans don't allow this.

'It's one of the things that puts people off these loans, definitely,' says Kevin Morgan of EZI UK, an IFA. 'But the other
reason for the low take-up is that brokers don't ask their clients whether they want payment stability over five, seven or
10 years at the outset. If they did, most borrowers would say yes. But then brokers wouldn't gain any more business
from that client for that period. At present, most brokers organise remortgages for their clients every two to three years.'

With the outlook for inflation low, it would certainly be cheaper for borrowers to take a shorter-term fix right now.

But there's always an opportunity to hedge your bets. As Morgan says: 'You could arrange half your mortgage on a
long-term fix for repayment stability and half on a shorter fix which allows capital repayment. That would give you the
best of both worlds.'