How it works across The Pond

The long-term mortgage market in the US revolves around two main mortgage agencies - Freddie Mac and Fannie Mae. Borrowers generally take out a mortgage with a bank, which then sells its mortgage book on to one of the agencies. Freddie Mac and Fannie Mae then 'securitise' the mortgages, selling them on the market like corporate bonds.In fact mortgages traded in this way make up almost 40 per cent of the US bond market.

The agencies are subsidised by the government so they can offer the banks a good price for their mortgage books, which the banks can in turn pass on to their borrowers in the form of lower interest rates. US lenders are currently offer ing 30-year terms at under 5 per cent.

Gordon Brown has asked economist David Mills to report this autumn on how long-term mortgages could be encouraged in the UK. However, his enthusiasm for a Freddie Mac-style system may be dented by the recent discovery of accounting errors at the agency that may equal those of Enron.

Nor are 30-year fixes the most popular deals. 'People prefer to fix for five or 10 years, because at the end of these terms, other banks start clamouring for their business as they start to look around for the best five or 10-year deal at that point. You can have three or four banks falling over themselves to get your business,' says Kevin Fleury, regional manager for the US, Canada & the Caribbean at overseas property specialists Conti Financial Services.

The other main difference between the US market and our own is that there are no high-income multiples - lending is made purely on an affordability basis, usually 34-36 per cent of gross annual income.

'Say you earn $100,000, that would give you $36,000 to play with,' says Fleury. 'Divide that by 12 and you have a monthly sum of $3,000 - from which you have to subtract all your other monthly credit payments. What's left is the amount you can afford to repay each month and your loan will be based on that.'