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Plans to help borrowers secure more affordable rates for long-term fixed-rate mortgages, announced in Alistair Darling’s pre-Budget proposals, are unlikely to increase demand significantly, experts say.

“Mortgages of up to 25 years have been available for some time but are not very popular, as they are obviously not a very flexible contract to be in,” said Richard Farr, director of the Association of Mortgage Intermediaries.

“They have little impact on helping people on to the property ladder, as they do not address issues of affordability.”

In the past few months Halifax, Nationwide, Norwich and Peterborough and Yorkshire building societies have all launched 25-year fixed-rate mortgages but long-term deals still make up only a fraction of mortgages brokered.

Fixed-rate deals offer borrowers a guaranteed rate of interest for a set period of time with two-year fixed rates currently the most popular product on offer on the market. Long-term fixed rates, by comparison, are higher than those offered for short-term deals in order to reflect the increased risk taken on by the lender but advisers say that this is not the only reason they are unpopular.

Many borrowers, they say, find it difficult to make plans that exceed a few years and are, therefore, unwilling to tie themselves to long-term deals that penalise them for altering their arrangements.

“The government seems to be focusing on supply and ways to make it easier for lenders to offer long-term products,” said James Cotton, mortgage specialist at London & Country Mortgages. “But the industry should be looking at demand. Offering more products is not going to solve the problem.”

Banks and building societies have withdrawn 40 per cent of their mortgage deals over the past three months, as the credit crunch takes its toll on people trying to buy a home.

It is the latest sign that lenders are tightening their loan offers in an attempt to recover lost profits following the turmoil in the financial markets.

In total, 5,511 different home loans have been withdrawn since July this year, as many banks and building societies have struggled to borrow money in the wholesale markets.

This has increased their costs - which they pass on to their customers, by withdrawing their best deals or raising rates.

According to independent statisticians Moneyfacts.co.uk, the fall in the number of products on offer is steepest in the subprime sector, as banks and building societies have stopped offering home loans to people with poor credit histories.

But it said the mainstream lending market had not escaped the cull as lenders took a more cautious approach across the board.

Melanie Bien, from mortgage broker Savills Private Finance, said: “It’s not just a problem with subprime or buy-to-let any more. It is beginning to filter through to the mainstream market.

“There is just less choice out there. And with less choice it is tougher for people to find a loan.”

The research from Moneyfacts.co.uk comes just a few days after website MoneyExpert highlighted that one in three home buyers had been rejected for a mortgage in the past six months - a sharp increase on the year before.

The mainstream mortgage market has seen a 16 per cent drop in the number of products available, which Moneyfacts said was unusual in a historically static market.

Despite a recent hit in confidence in the mortgage and financial markets the fundamentals of the UK mortgage market are very sound according to the Intermediary Mortgage Lenders” Association (IMLA).

Peter Williams, executive director of IMLA, says: “The turmoil in the financial and mortgage markets was attributable not to an actual problem with the credit quality of UK mortgage books, but concerns among investors that UK lenders could encounter the same problems as have occurred in the US. That ignored the fact that the credit quality of UK mortgages remains very good.”

Mr Williams added that while house price inflation is falling and will continue to do so into 2008, aggregate demand continues to exceed supply.

Indeed, IMLA said recent RICS figures that indicate that house prices are beginning to cool should not be interpreted as an early indication of a house price crash

Employment remains high, interest rates remain historically low - despite recent volatility - and the economic backdrop remains positive,” Mr Williams said.

The UK housing market is now showing signs of a significant slowdown according to a price survey based on official Land Registry figures.The FT House Price Index for September showed pries rose 0.3 pct from August, for an annual 8.8 pct rise, the lowest year-on-year rise this year and well below August’s 9.4 pct increase.

‘The continuing fall in both the monthly and the annual inflation rate was expected and begins to suggest we will now see a period of further reductions in the rate of price increases, following the broadly stable pattern which we have observed in the first few months of the year,’ said Dr Peter Williams, chairman of Acadametrics who collate the figures.

On a region-by-region basis the West Midlands and the North recorded the lowest annual growth rates of 4.4 pct and 4.7 pct respectively. Meanwhile, London continues to remain out of step from the rest of the UK, posting the highest annual growth rate of 17.2 pct, well ahead of the South West which recorded the second biggest increase at 9.7 pct.

Looking ahead, Williams said the slowdown is set to continue.

‘The expectation of a slowing market through the remainder of 2007 remains regardless of any decisions by the Bank of England,’ he said.

‘Indeed, the Bank’s previous increases in interest rates have now collided with the tightening in mortgage credit resulting from the sharp increase in mortgage arrears and repossessions,’ he added.

New restrictions on lending to high-risk customers could lead to a surge in the numbers of people seeing their mortgage applications turned down, new figures revealed today.According to the new research from independent broker The Mortgage Lender, a quarter of all specialist and sub-prime mortgage applicants accepted in August would now be refused, following changes to lenders’ rules.

Mortgage experts said the new tighter controls on Loan to Value (LTV) and credit history were likely to have a significant impact on low-income families or borrowers with a poor credit rating trying to get into the housing market.

U.K. house prices were unchanged for a second month in September, suggesting five interest-rate increases in the past year and turmoil in financial markets have rattled buyers’ confidence, Hometrack Ltd. said.

The average cost of a home in England and Wales was unchanged in September at 176,300 pounds ($358,000) from a month earlier, according to a survey by the London-based research group published today. London and the southeast of England were the only regions to show gains, with prices rising 0.1 percent in both areas.

The U.K.’s decade-long property boom is cooling as a credit- market slump threatens to raise the burden on Britons already shouldering a record 1.3 trillion pounds in debt. Higher credit costs forced mortgage lender Northern Rock Plc to ask the Bank of England for emergency funding last month, leading to the first run on a British bank in more than a century.

“Turmoil in the financial markets has created a period of inertia in the housing market, with buyers and sellers unwilling to commit until the outlook becomes clearer,” Richard Donnell, Hometrack director of research, said in the report. “Demand and sales volumes look set to remain weak over the rest of the year.”

From a year earlier, U.K. house prices climbed 5 percent in September, down from 5.4 percent in August, Hometrack says.

The beleaguered subprime mortgage market in the UK has been dealt another blow, by an investigation claiming to have uncovered evidence of serious mis-selling.

Borrowers have been told to stretch their incomes to take out loans much bigger than they can realistically afford, according to a BBC File on 4 radio programme broadcast last night.

Half of all subprime mortgages in the UK are estimated to be self-certification loans - where borrowers state their incomes, which the lenders will not always check. This is intended to help such groups as the self-employed and those who derive some income from state benefits.

A former mortgage broker told the BBC that inflating the client’s income is seen as an easy way for some advisers to get a deal approved. And one borrower whose real income was £25,000 said he was advised to double that on his mortgage application to obtain a loan of more than eight times his salary.

A spokesman for the Financial Services Authority said: “We are determined to cut down on mortgage fraud. Based on our investigations and on information received from lenders and whistleblowers we have banned a number of brokers who have been involved in knowingly overstating the income of mortgage applicants and we will continue to crack down on this abuse.”

Industry experts in Scotland say that while there may be the occasional case of this type of mis-selling it is unlikely to be widespread.

John Postlethwaite, consultant at Punter Southall Financial Management in Edinburgh, told The Scotsman: “I would be surprised if this isn’t happening but I’ve not come across any clients who have wanted to lie about their income. Lenders should have systems in place to pick this up. They should spot if a postman is claiming to earn £100,000.”

Postlethwaite added that the problem was likely to be less pronounced in Scotland because house price inflation had not stretched affordability to the same extent as in some areas in England, especially the south-east.

David Watson, consultant at Savills Private Finance in Edinburgh, said: “I’d be very surprised if it’s happening on a big scale. As with any industry there is probably the odd ‘bad apple’ and it looks like some brokers have been encouraging borrowers to lie.

“Most of the big lenders in these fields say that arrears for their subprime mortgages are not that much greater than for their mainstream business so this would back up the fact that, in the main, people are borrowing within their means.”

But the investigation will put further pressure on subprime lenders and borrowers. This month Victoria Mortgages became the first UK subprime lender to go into administration.

Britain’s treasury chief says he wants new, American-style guarantees to protect savers’ money after the Bank of England’s effort to bail out Northern Rock — one of Britain’s biggest mortgage lenders — sparked panic among depositorsCustomers line up to withdraw cash from a Northern Rock branch during the height of the crisis

The announcement is the latest consequence of the crisis afflicting Northern Rock, which has reportedly seen the bank absorb £3 billion ($6 billion) in publicly funded loans and raised questions about how Britain’s banking system is managed.

Treasury chief Alistair Darling told The Times of London he was considering U.S.-style deposit insurance, which would protect customers’ money in the event of their bank’s collapse. He did not give a figure, but The Times quoted him as saying a £100,000 guarantee was a possibility.

Under current regulations, only the first £2,000 of British bank customers’ money is fully guaranteed, while the next £33,000 is guaranteed up to 90 percent. Darling told The Times those protections were inadequate.

Darling and other officials have come under fire for their handling of the crisis, which first became public on September 14 when the Bank of England announced it had made funds available to Northern Rock because the company was having trouble getting loans from other banks still smarting from the collapse of the U.S. subprime mortgage market.

Government officials tried to reassure the public that Northern Rock was still solvent, but worried customers ignored the advice and lined up at the bank’s branches to withdraw their savings as the value of the company’s shares collapsed.

Bank of England Governor Mervyn King came in for further criticism when he announced plans to inject funds into the longer-term money market, a major policy U-turn analysts said could have eased pressure on Northern Rock if made earlier.

Angry lawmakers grilled King on Thursday about why he failed to prevent a run on deposits, and the chairman of the committee investigating the crisis said Darling and other regulators would also be asked to testify.

The Financial Times said Saturday that Northern Rock has so far been forced to borrow about £3 billion in publicly funded loans. Northern Rock Chief Executive Adam Applegarth had previously said his company wanted to borrow substantial sums of money from the Bank of England, but did not say how much.

A Bank of England spokeswoman said the £3 billion figure was speculative.

“What happens is that various commentators have looked at our balance sheets and seen that it’s expanded,” the spokeswoman said, speaking on condition of anonymity in line with bank policy. “They’ve gone and made a supposition out of an expansion in the balance sheet.”

A Northern Rock spokeswoman refused to discuss the report.

“We don’t comment on corporate activity of that nature,” company spokeswoman Jemma Rundle said

Home repossessions could rocket by the end of the year as lenders of sub-prime mortgages push up their interest rates and clamp down on easy credit terms.As many as 250,000 homeowners with poor credit histories might have to pay more or risk losing their homes as the after-effects of the Northern Rock debacle and the global credit crunch forced lenders to impose new restrictions on their loans, according to mortgage brokers.

Experts said lenders were in no mood to take risks and tens of thousands of homeowners would find they could no longer afford their mortgages when their fixed-rate deals came to an end. The run-up to Christmas would be a crucial period as specialist lenders pushed their rates up and refused loans to customers with the worst credit problems.

The sub-prime sector represents around 1m (9%) of the 11.7m mortgages in the UK. Traditionally a niche market dominated by self-employed borrowers, it has grown rapidly after lenders targeted people who would find it hard to qualify for a conventional loan. These include those who have missed payments on mortgages or credit cards, had county court judgments against them, or have a small income.

Until recently lenders could borrow cheaply, and sub-prime loans were only marginally more expensive than high street mortgages. But the freeze on lending by major banks to each other has pushed up borrowing costs. The Northern Rock crisis has made the situation worse, leaving sub-prime lenders with no alternative but to withdraw their loans or dramatically increase the price.

Mortgage brokers said around a quarter of borrowers were in the “seriously adverse” catagory with more than six months’ arrears on their mortgage, unpaid utility bills and credit cards.

The Bank of England has played down warnings of a sub-prime mortgage crisis in the UK. But Ray Boulger of Britain’s largest mortgage broker, John Charcol, said: “There will be many people who will find their mortgage unaffordable. There will be others who cannot get a mortgage at all because lending criteria have changed.”

HOMEOWNERS may benefit from the crisis at Northern Rock as analysts speculated UK interest rates may have peaked.

The cost of fixed-rate mortgages has been edging down during the past few weeks, and the trend continued yesterday with predictions the Bank of England’s Monetary Policy Committee (MPC) could cut interest rates in the coming months.

The US Federal Reserve on Tuesday cut the cost of borrowing by 0.5 per cent to 4.75 per cent to prevent a recession, while in the UK minutes for the MPC’s September meeting showed the rate-setters had voted unanimously to hold rates at 5.75 per cent as they decided that inflation risks had “probably receded”.

With inflation running at 1.8 per cent in August - below the Bank’s 2 per cent target - some economists predicted rates could be on the way down later this year.

Ray Boulger, of mortgage broker John Charcol, said people who did not need the certainty of fixed monthly payments would still be better off taking out a tracker. He said he would go for a deal that did not include early repayment charges so that people could switch to a fixed-rate deal when they wanted to.

Meanwhile, it emerged that the high-street bank Abbey was piloting a deal offering a 100 per cent mortgage plus a secured loan of up to £25,000, joining only a handful of lenders who advance 100 per cent.