The Government today launched a consultation on how to encourage lenders to develop more affordable and flexible long-term mortgages.

It also announced that a working group would be looking at ways to boost the wholesale money markets which have effectively dried up in the wake of the global credit crunch.

The Government is keen to encourage certain borrowers to take out long-term fixed-rate mortgages for 10, 20 and even 25 years.

It believes that these loans could benefit some homeowners, such as those on low incomes, by providing greater stability and certainty of mortgage repayments.

But while a handful of providers in the UK offer the deals, take up is generally low, with just 3.1% of mortgages taken out in August fixed for more than five years.

In the Housing Finance Review, which was published alongside today's Budget, the Government said one of the reasons for this was the high redemption charges borrowers are generally hit with if they exit one of the deals early.

It said this was generally because lenders funded these mortgages with long-term fixed rate funding, which left them facing a cost if borrowers pull out.

It is consulting on ways to help lenders better manage this risk, such as by passing it on to investors, which would in turn reduce the cost to borrowers.

It is also looking at ways to encourage other innovative products to be introduced, such as insurance against big rises in interest rates.

The Government also announced a consultation on ways to improve the liquidity in the mortgage-backed securities market.

It wants the industry to develop a "gold standard" market for mortgage-backed securities.

This would have the dual aim of enabling lenders to sell on mortgages, getting them off their balance sheets and freeing up capital for more lending, while at the same time boosting confidence in the market among investors.

It hopes that the move would also broaden the base of investors who bought these securities, further strengthening the mortgage market in the long-term.

But it stopped short of setting out what would constitute a "gold standard" mortgage, instead setting up a working group, which will include representatives from the mortgage and investment industries, the Treasury, Financial Services Authority and Bank of England, to take the ideas forward.

The move came as a relief to the mortgage industry, which had expressed concerns about a two-tier market developing as a result of a Government imposed gold standard, making it more difficult and expensive for certain types of consumers, such as those with impaired credit histories, to borrow money.

Both reviews will report back at the time of the Pre-Budget Report.