Osborne expected to cap high LTV lending
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It is expected that George Osborne, chancellor of the exchequer, will announce tonight that the Bank of England is to be given new powers which could include a restriction on high LTV lending.
It has been reported that Osborne will restrict higher LTV lending and lending to those with a poor credit history.
In his first Mansion House speech he is expected to argue that the easy availability of credit, low interest rates and 125% mortgages all contributed to the credit crunch.
It has been reported that he could go as far as to cap LTVs at 75% for some borrowers.
Michael Coogan, director general at the Council of Mortgage Lenders, says: “We need to remember that in the UK it was not risky lending that caused the banking problems, it was banks’ inability to refinance their borrowings due to the shutdown of global financial markets.
“We also need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained into low-risk borrowers that it may be making it more difficult for the economy to grow as individuals and businesses find it more difficult than they would wish to borrow.
He says it may make sense – depending on the detail – for the Bank to have tools such as this at its disposal.
But he says it is surprising to see such attempts to target specific sectors such as the mortgage market when the new and onerous capital regime – which will be the most effective tool in influencing lending decisions going forward - will dampen risk appetite and manage risk in lending across the board.
He adds: “Policymakers need to be very careful to avoid trying to solve the wrong problems – the much bigger problem for the mortgage market for the foreseeable future will be in raising enough money to lend, not the risk of stoking asset bubbles through over-generous lending.”
The CML estimates that around 2.5 million mortgages outstanding - around a quarter of all mortgages - are for more than 75% of the value of the property.
Osborne is also expected to recommend that the banking sector should be broken up into separate retail and investment banking arms.
And that some of the FSA’s powers are handed to the Bank of England.
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Readers' comments (9)
Mike LeGassick | 16 Jun 2010 12:52 pm
Another classic example of the government not thinking things through properly. How will this effect people remortgaging who are at or near 85% loan to value on an existing property? This legislation would mean that they would have no option but to stay on standard variable rates until property prices increase. This would be a calamity.
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Anonymous | 16 Jun 2010 1:12 pm
Another balls up. People unaware of what the real issues were in the mortgage market. Simple pricing to risk not LTV's and we would not have had a credit crunch. Can someone please speak to these morons in control of our banking system. We are going to completely wreck any recovery. Please! Please!
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Jcos | 16 Jun 2010 1:34 pm
To cap borrowing at 75% would be ludicrous how many first time buyers would have a 25% deposit. This should really help the housing market !!!!
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Michael White CEO Emailmortgages.com | 16 Jun 2010 2:10 pm
If Mr Osborne and his ‘advisers’ is going to react to anything or anyone it will be constructive feedback from the mortgage lender and adviser trade bodies.
Michael Coogan has thankfully commenced the process and I believe completely correct in his initial comments. I might suggest that someone from AMI also step up to the plate as a matter of urgency? and also try to dilute what appear to be somewhat over enthusiastic ‘knee jerk’ government proposals.
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Kevin Grannersby | 16 Jun 2010 2:21 pm
Here's a radical idea for everyone. Why don't we actually wait and see what gets announced before we fly into a panic?
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Gray Haired Underwriter | 16 Jun 2010 2:23 pm
So now HMG know how to lend money as well as how to take it off people? I can only say one thing if this stupidity is allowed to proceed - what a plonker. And I so remember all of these people telling us how good a Tory Government would be!!
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Anonymous | 16 Jun 2010 2:38 pm
Why does every one jump at the headline before they read the article...at the moment its all speculation and nothing has been confirmed! As for Michael Whites comments, will Mr Osbourne and his associates take any notice of the 'adviser trade bodies?'
On the other hand, should the article be factual then Mr Coogan's comments are very accurate.
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Jonathan Burridge | 16 Jun 2010 3:54 pm
The more restrictions imposed on lenders by regulators will lead to fewer products, reduce competition, increase prices, limit consumer choice and extend market stagnation. It was not the availablity of credit per se that cause the problem. It was the products that loans were turned into and traded and how these products were poorly regulated that led to the collapse of the mortgage market firstly in the states and then in the UK.
Restrictions on retail lending is, again, regulation in the wrong place. If credit agencies valued Mortgage Backed Securities correctly, if investment banks structured their products clearly and the behaviour of the wholesalers had been more closely scruntinised by regulators the situation could have been avoided.
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Anonymous | 16 Jun 2010 7:18 pm
Jonathan you are 100% correct. The mortgage market needs products available for all consumers, and lenders need to have learnt their lessons from the last crisis. The issue was the securitisation market, and how it was manipulated. Investors in many cases were unaware of what was being purchased because the agencies rated them as AAA incorrectly. Properly priced and underwritten mortgages are not the issue. Unfortunately if a client defaults on a mortgage they will lose the property, and if the lender has done their job properly they will recover the loan. This is a fairly simple principle, pay and all will be fine, dont and the asset will be taken. No major regulation needed there. Proper regulation was required for securitisation but this was ignored. Possibly the way to revive securitisation is to regulate it properly. This would have more of an effect on the market than adding another section to a fact find for the brokers. The principle of any lending is simple .... lender wants to lend, borrower wants to borrow, and somewhere in between an agreement on risk happens. The consumers did not cause the credit crunch, the investors did. Not many borrowers realised that their mortgage was going to be broken up and sold on many times over. Lenders should be allowed to lend in any way they choose, as long as the borrowers are satisfied with the terms of the loan.
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