LONDON (Thomson Financial) - The UK is to consult on a new regime for covered bonds to help mortgage lenders finance more affordable 20-25 year fixed-rate mortgages, said Prime Minister Gordon Brown.
Outlining a draft legislative programme ahead of this year's Queen's Speech, Brown said Chancellor Alistair Darling MP will report by the Budget in spring next year "on how to overcome any barriers preventing lenders from offering people long-term mortgages".
This includes the case for changes to instruments used by the Debt Management Office (DMO).
He also outlined plans to increase housing construction and implementation of a Planning Bill to speed up consents for major projects.
New legislative proposals will be published next week for a covered bond regime in the UK to assist mortgage firms to finance their lending over the longer-term.
Covered bonds are corporate bonds issued by credit institutions and secured against collateral, typically mortgages and public sector loans.
"Credit institutions are already able to issue covered bonds in the UK, and are doing so. However, not as many bonds have been issued in the UK as elsewhere in the EU," the Treasury said in a statement.
"The proposed legislation will mean that issuers can take advantage of the special status accorded to covered bonds under EU law, and adjust the risk weightings accordingly."
"This should help issuers to access the large EU market in covered bonds and issue more bonds. It will also help them match borrowing and lending over the longer term."
The Treasury will also conduct a review to identify find any further barriers to lenders wanting to raise funds in wholesale markets.
It added that the government will back a Private Members Bill, currently before parliament, which will increase the proportion of funds building societies can raise on wholesale markets to 75 pct from 50 pct, giving them more flexibility in financing their mortgages.
The review will assess the supply of, and demand for, financial instruments "to allow the risks of mortgage pre-payments to be hedged efficiently", the Treasury said.
This includes looking at whether the DMO could use "swaptions" to better manage the government's debt portfolio.
"Swaptions" are a financial instrument that gives the holder the option -- but not the obligation -- at a point in the future, to enter into a swap contract, at an interest rate that is agreed now.
Darling, meanwhile, said he would look at the "rapidly developing residential asset backed securities market", and assess whether "there are remaining obstacles or inefficiencies preventing further improvement in liquidity allowing securitisation to become a greater source of housing finance".
Another area for scrutiny will be recent financial innovations aimed at re-packaging housing and funding related risks "which tend to be aimed at people on higher incomes", and "assessing whether there may be important obstacles that prevent these opportunities from becoming more widely available".
Brown said this policy would be allied to a huge house building programme that will see the number of new homes constructed annually rising to 240,000 from 200,000 by 2016.
"We propose a Housing Bill which will support and encourage initiatives on the ground by local authorities and other authorities," he said.
This strategy would see the creation of a new homes agency "charged with bringing surplus public land into housing use to deliver more social and affordable housing and support regeneration".
He added that up to 100,000 homes could be built on around 550 surplus sites owned by departments such as the Ministry of Defence and the NHS.
"In addition we estimate another 60,000 homes can be built on brownfield land currently owned by local authorities," Brown said.
In total, three million new homes would be built by 2020 - up 250,000 from the previous plan, he said.
The third strand would be a Planning Bill which will incorporate the recommendations of last year's Barker report to speed up major infrastructure projects.
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