In his pre-Budget report on Monday, Chancellor Alistair Darling backed Sir James Crosby’s long-awaited report, which encourages the Government to guarantee new mortgage-backed securities.
The report says any mortgages that would be guaranteed must be of a higher quality. It says: “The guarantee would only be available for assets backed by ‘prime’ mortgages. This could exclude high loan to value lending, for example, 95 per cent, loans to borrowers with impaired credit histories, individual voluntary agreements or bankruptcy orders, and second-charge loans.”
Commentators say this means lenders will be less willing to offer mortgages that are beyond 90 per cent LTV or are adverse in nature.
The Mortgage Practitioner principal Danny Lovey says: “It seems that the chances of any first-time buyer getting a mortgage in excess of 90 per cent LTV in the foreseeable future is extremely unlikely.”
Homefunding chief executive Tony Ward says the strategy defeats the point of securitisation and will not encourage or fund lenders into creating more adverse products.
He says: “It is not going to help the impaired market and FTBs right now. Unless you can provide funding for these key areas, the market is not going to be repaired. It is a great start but it does not go as far as it needs to. It needs to deal with a broader market solution.”
The report has also been criticised for excluding existing mortgages from the guarantees and for the timetable for implementing the guarantees due to the need for European Commission clearance of the proposals.
Checkmate Mortgages chief executive Stephen Knight says: “Remortgaging has in recent years consistently made up around 40 per cent of the UK mortgage market and the exclusion of funding to this section of the market means that the benefits of broader and cheaper mortgage funding will not be passed on.”