Lenders urged to offer all deals to all people

Cheap mortgage deals that target first-time buyers and borrowers who switch lenders could disappear if reforms proposed in a new Treasury-commissioned report get the go-ahead.

The Miles report on mortgage lending, commissioned a year ago by Gordon Brown, yesterday recommended that lenders should be required to offer existing customers the same deals as new borrowers.

The report concluded that lenders are subsidising cut-price deals offered to new customers through the higher rates paid by existing borrowers. It added that "fairer pricing" would give existing borrowers considerable savings.

Under the proposals, every mortgage holder will be sent an annual statement detailing their lender's best deals, how they can switch and how they can gain access to regulatory "best buy" tables.

It also proposed new "what if" rules, under which lenders will be forced to tell borrowers how much their monthly payments would increase by if interest rates rose.

A separate recommendation called for the introduction of insurance schemes that would cover borrowers against the risk of sharp rises in interest rates.

But the report fell short of meeting the chancellor's hope that UK mortgage holders could be persuaded to abandon their appetite for short-term mortgages in favour of US-style, fixed-rate deals of up to 25 years.

The report's author, Professor David Miles of Imperial College London said he did not want to "force" borrowers to take out longer term loans but he believed more would do so in the future.

He said most borrowers in Britain were ignoring the possible benefits of long-term fixed rates in favour of reducing monthly payments with shorter-term deals. Homeowners were looking for initial low repayments even if interest rates rose after a few years, he said.

The majority of British homeowners have either variable-rate mortgages or shorter-term fixed-rate loans, usually of two to three years, whereas in the rest of Europe and the US 25- and 30-year mortgages are the norm. But he quashed fears that he might call for an Office of Fair Trading investigation into mortgage market practices, finding few examples of widespread market failure.

He concluded that the UK mortgage market was generally "dynamic and innovative" but his recommendations would "address the problems that exist in the information and advice that borrowers receive". Lenders welcomed the report, in particular the call for greater clarity for customers about how interest rate rises would affect monthly repayments.

Some voiced concerns that the removal of cut-price deals could have damaging effects for first-time buyers.

David Bitner, head of product operations at the Marketplace at Bradford & Bingley said that compelling lenders to offer all deals to all people "would force many lenders to drive up rates because it would be too expensive for them to offer all borrowers the kinds of competitive deals they currently offer to attract new customers.

"It would mean longer-term fixed rates wouldn't look as competitive as they do at present. It would also mean new borrowers and remortgagers wouldn't have access to the kind of low-rate deals that are currently available, making it even harder for first-time buyers to get on the property ladder."

The Miles report is one of two on the housing market being published before the Budget on Wednesday.

Kate Barker, a member of the Bank of England's monetary policy committee, is looking into why housebuilding in Britain has not kept up with demand.

Her full report is due out next week.