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Gold Standard Government

The Government has further plans up its sleeve for the mortgage industry after it emerged it wants to create a new ‘gold standard’ for covered bonds and mortgage backed securities.

It says in order to increase transparency and improve investor confidence, it will consult with the industry on this gold standard which will help not just the housing market but wider economic growth in these “uncertain times”.

The plan was actually revealed by Alistair Darling at the EEF Manufacturers’ biennial dinner last month but has only just been picked up. In point 32 of Darling’s 82-point speech, Darling revealed his new plans for the market, which the Government hopes will help reopen the wholesale mortgage market.

Darling said that a “key issue now is the continued tight credit conditions in the secondary mortgage market. The easing and recovery of those markets is essential to stabilising the housing market.”

He said he would report further on the proposal in the Budget next Wednesday, where he will also expand further on his plans for making a greater availability of affordable long-term fixed rate mortgages.

But Darling’s plans for a new “gold standard” kitemark raise some interesting questions. Who will run it? Isn’t it what ratings agencies are there for? And with the mortgage backed securities being a global market, how will a gold standard rating from the UK government work?

Some might also suggest that with the recent poor performance by the Government in its handling of Northern Rock and the liquidity crunch, would a gold standard rating from it really mean much?

The announcement has already created some varied responses within the industry. director Nicholas Leeming suggests that government intervention may make things worse in the long run.

He says: “What happens if a borrower with a gold star defaults? Will the Government come to the rescue? And what about the best quality first-time buyer with a good income and excellent prospects? The best intentions may become mired in bureaucracy and it may become much harder to get on the housing ladder.

Leeming points out that the credit rating agencies must shoulder a lot of responsibility for the collapse of confidence in the mortgage finance market. He says that reforming how they work and ensuring strict supervision of their activities may be a better option.

Connells Survey & Valuation managing director Ross Bowen says that the detail and implementation of this gold standard is critical.

He says: “Many borrowers in the non confirming sector with high loan to value mortgages could suffer higher costs and tightened criteria. First time buyers often have high LTVs despite being likely to keep up their repayments. If all non-conforming mortgages are branded high risk without flexibility, Darling runs the risk of putting first-time buyers out in the cold.”

Figures in the industry claim the Government has not started consulting on this yet so it could be that it is just an idea the Government is floating around. The mortgage market will have to wait and see in next week’s budget what exactly this ‘gold standard’ will mean.


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