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Loan cap fears for high-LTV sector

The mortgage industry has warned that any regulatory moves to cap homeloans could lead to future inflexibility in the higher loan-to-value area.

Last weekend, ministers hit out at banks that offered mortgage deals of 100 per cent or more of property value, with Prime Minister Gordon Brown hinting at FSA regulation to cap mortgage loan to value ratios.

In an article in The Observer last Sunday, Brown wrote: “We have to get the balance right between serving homeowners better and encouraging responsibility in the housing market.

“We have asked the FSA to look at how in the future we should control new mortgages for more than 100 per cent of house value.”

Talking to the BBC on The Politics Show, banking minister Lord Myners said that 100 per cent mortgages had been “a foolish thing to do”.

HFM Columbus director Gary Festa says: “Mortgages beyond 100 per cent are stupid, so it is a good idea to have some limits but I do not like the idea of loan to value being regulated and legislated too much. We do not know what the future holds, so giving mortgages legal restraints may lead to difficulties in years to come.”

The Council of Mortgage Lenders has also questioned how a legal cap would function in relation to other schemes, which work in the high-LTV area.

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? 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 per cent-plus mortgages in the future.”

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