Halifax, the UK's largest mortgage lender, says it supports the development of a substantial long term fixed rate (LTFR) mortgage market in the UK.

But, the Group says, a sizeable LTFR mortgage market should supplement - and not supplant - the existing, very dynamic UK mortgage market where the emphasis is on short term variable rate loans. It is only when consumers see a clear benefit from LTFR products that they will take these products up in significant numbers.

The Group does not believe that LTFR products are a miracle cure for the UK housing market, if indeed there are such problems anyway. Their research shows that the main long term driver of UK house price growth is the level of employment; for this reason, it is difficult to see how a greater emphasis on LTFR products in their own right could act as a brake on house price growth, Halifax says.

Mortgage industry must work with government

It is important that the mortgage industry works with the government and other financial institutions to develop a deep and broad wholesale money market facility, says the Halifax. Here, the objective must be to create strong, long term funding flows thereby ensuring that, going forward, sizeable redemption penalties are not a significant feature of any LTFR mortgage market.

Halifax also notes that the UK mortgage market has already made great strides in developing a range of products that protect consumers from vagaries of interest rate changes. Short term fixed rate mortgages, capped and tracker mortgages are examples. Flexible mortgages and offset mortgages do not provide the same degree of protection, but they bring a good degree of independence for individual borrowers. Many European mortgage markets do not have the same attributes.