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Govt considers ban on 100% mortgages

Banking minister Lord Myers has labelled 100 per cent mortgages as “foolish” as Gordon Brown hints at regulatory limits to high loan to value loans.

Speaking this weekend on the BBC’s Politic Show, Myers said that it was “generally recognised in the banking community” that 100 per cent mortgages had been “a foolish thing to do”.

He said: “We have learned some very, very expensive lessons globally about reckless, feckless, witless lending by a small number of banks.”

This came the same day the Prime Minister Gordon Brown wrote in the Observer that he was considering ordering the FSA to regulate the limitations of mortgage LTVs.

He said: “We want to see the reinvention of the traditional savings and mortgage bank in Britain – making loans on prudent and careful terms, not just to people with large deposits but to first-time buyers and those on middle and modest incomes who wish to buy their home but who have not been able to save a huge deposit.

“But we have got to get the balance right between serving homeowners better and encouraging responsibility in the market.”

The CML says there are side issues to consider that should not get lost, despite the inherent appeal of a simple policy such as this to mitigate risk and encourage responsible borrowing.

It says: “What about negative equity products for borrowers who want to move house but whose own house price has fallen?

“What about shared equity loans made to the affordable housing sector, where borrowers are not asked to pay a deposit? And what about the fact that people may simply “top up” their borrowing with second mortgages or other unsecured loans on more expensive terms?

“These issues all need to be considered in deciding the right regulatory approach to 100% mortgages in the future.”

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