ANALYSIS By Ian Pollock Personal finance reporter, BBC News

Longer mortgage deals are the government's aim

In fact it was in 2003 that, as Chancellor, Mr Brown asked Professor David Miles to report on why such mortgages are not very common, or indeed very popular.

Back then, Mr Brown said that if there were more of these mortgage deals around, they would help to smooth out the ups and downs of a volatile property market.

The overall benefit to consumers from the government legislating for longer-term fixed-rate mortgages is uncertain Royal Institution of Chartered Surveyors

And Professor Miles in 2004 seemed to agree with the idea that more long-term borrowing would be a good thing, if it could be made cheaper.

With house prices, and the ever-increasing difficulty of buying a first home, becoming a really hot topic, Mr Brown has returned to the issue with a new idea to help lenders make them more widely available.

But industry experts are not sure whether Mr Brown's plan will have the intended effect.

What's the plan?

Mr Brown wants to promote a new financial instrument to allow banks and building societies to borrow more money on financial markets - covered bonds.

The idea behind these so-called covered bonds is actually quite simple.

The issue is just as much about the consumer appetite for long-term fixed rates as about how they are funded Council of Mortgage Lenders

Bonds are glorified IOUs, issued by companies and governments to raise money, instead of either putting up taxes or borrowing from a bank.

A covered bond is one whose eventual repayment is secured on a mortgage.

The bonds could be issued by the lenders - banks and building societies - directly, or they could be issued by companies, or even the government, with the bonds then being bought by the lenders to back their own new lending.

EU practice

So the government's idea is effectively a behind-the-scenes mechanism to increase the availability of covered bonds, which can then be used to finance long- term mortgages on offer to the public.

Another government proposal is to let building societies raise more money in the financial markets to improve their ability to lend.

It also wants to bring into line with EU practice the way UK companies account for covered bonds on their balance sheets, so making it easier for these bonds to be issued in the first place.

And that, so the thinking goes, should mean that mortgage lenders will be able to lend more money out to house buyers in the form of 15 to 25 year mortgage deals.

Will it work?

It has never been obvious why, exactly, more long-term fixed-rate mortgages should in fact lead to more stable house prices.

If people want certainty of payment, then this is a way for letting that happen The Treasury

And the immediate reaction from industry experts to the government's latest announcement shows a degree of scepticism.

"The overall benefit to consumers from the government legislating for longer-term fixed-rate mortgages is uncertain," said David Stubbs of the Royal Institution of Chartered Surveyors.

As Professor Miles reported four years ago, these deals are not very popular because they tend to have a higher interest rate than their short-term counterparts.

Fixed rates

And people in this country are simply not very keen to tie themselves into a loan for a long time.

At the moment mortgages fixed for five years or more account for 8-10% of new mortgage lending, according to the Council for Mortgage Lenders.

Of those, most are of five to 10 years in duration.

Currently only 25 lenders offer a 10-year deal; four lenders offer a 15-year deal; two a 20-year deal; three a 25-year mortgage; and just one - the Manchester Building Society- offers a 30-year fixed rate mortgage.

This is in marked contrast to housing finance in the EU and the US, where such deals are common.

Consumer demand

But simply increasing the ease with which lenders can sell long-term mortgages does not necessarily mean that more home buyers will ask for them.

The CML's spokesman Rob Thomas said: "The issue is just as much about the consumer appetite for long-term fixed rates as about how they are funded.

"It is too early to say whether these announcements will create a significant shift in the design of the mortgage products of the future," he added.

With interest rates currently on an upward trend, fixed-rate deals have become much more popular in the past year or so, as borrowers have sought to protect themselves, for a while at least, against further increases.

Fixed deals currently account for about 89% of first-time buyers' mortgages and 73% of deals for existing home owners who are moving.

And of the total stock of mortgages, about half are now fixed deals of one sort or another.

But most are of the two, three or four-year variety.

The country's biggest remaining building society, the Nationwide, is about to launch a new 25-year deal.

"If people want certainty of payment, then this is a way for letting that happen," said a Treasury spokesman.