But when Gordon Brown declared that changes to the structure of housing finance – notably much greater use of long-term fixed-rate mortgages – were indispensable before Britain could contemplate entry into the European single currency, the expected consensus failed to appear. The criticism has centred on three propositions: first, that there was no guarantee that fixed-rate funding prevented strong cycles in house prices (the US, for example); second, that in the very competitive British housing finance market there would be little interest in fixed-rate finance unless redemption penalties were much lighter; and finally, if the chancellor really does want to stabilise house price trends he would have to employ fiscal policies such as stamp duty and capital gains tax.
The Halifax has pointed out that the average length of a mortgage in the UK is between three and four years given the "churn" in the marketplace as borrowers shop around.
Fixed-rate funds have always been available but simply have not been attractive for most borrowers. However, things may just be changing. The proportion of mortgages taken out at fixed rates rose to 50% of total lending in May compared with 40% the month earlier and 27% in May 2002, according to the Council of Mortgage Lenders. This was the highest level since the end of 1998. This reflected the attractiveness of fixed rates when they were competitively priced, the council said, noting that average new fixed rates fell from 4.52% in April to 4.21% in May. Variable interest rates also fell but only from 4.14% to 4.1%.
The CML director general Michael Coogan was quick to dampen suggestions that this conveniently sighted swallow might make Gordon Brown's summer. The current pricing of short-term fixed-rate mortgages was being helped by expectations of interest rate reductions, he noted. "It is unlikely that the market can deliver the long-term fixed-rate mortgage products that are attractive to UK consumers without the introduction of significant government incentives to encourage borrowers to take them out."
Nonetheless, some of his members are reading the runes. Leeds and Holbeck has introduced a 25-year fixed-rate mortgage at 5.39% that permits customers to redeem or transfer penalty-free. This followed a 25-year product from the Cheshire Building Society at 5.49%, which includes the option of allowing borrowers to reduce the capital of the loan by £5000 a year without penalty. Yorkshire and Northern Rock both offer 15-year fixed-rate mortgages at 5.24 and 5.29% respectively.
Gordon Brown's proposition fell on sceptical ears down the road at the Bank of England – the doubting Thomas being its chief economist Charles Bean. Turning the argument on its head, he told the Treasury select committee that long-term fixed-rate mortgages could lead to more violent swings in interest rates unless Britain joined the euro. Interest rates would have to move more than otherwise to have the same impact on demand, making monetary policy less effective.
Meanwhile, the Ernst & Young Item Club, which makes forecasts based on a version of the Treasury's own economic model, simply disputed Gordon Brown's central premise that the housing market was a barrier to euro entry. A substantial fall in house prices would not derail convergence with the eurozone economies and the case for joining the euro was already clear and unambiguous.
The Financial Times argued that housing market swings were less due to interest rate changes than to a bubble mentality, which based house price expectations on the current rate of price inflation. The remedy was effective taxes on the consumption of housing services – such as a tax on house values.
Now the baton has been handed over to Professor David Miles of Imperial College London, who has been asked to report on how the UK can develop a market for long-term fixed-rate mortgages. Eddie George, in his last days as governor of the Bank of England, has already written his. His instinct, he pronounced magisterially, was to "let the market decide".
A lot of mortgage lenders will say a deep "Amen" to that.
David Curry is MP for Skipton and Ripon and a former Conservative housing minister.