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Going boldly down the road to nowhere

We can all sleep more easily this week, safe in the knowledge that Prime Minister Gordon Brown is planning to outlaw 100% LTV mortgages.

In the latest example of confused decision-making to emerge from this government, Brown has decreed that the way to encourage banks to lend more responsibly is to stop them offering 100% LTV deals by making these illegal. Genius. Proving that he has learnt nothing from more than 10 years in government, the PM is still going in for cheap sound bites that have no substance.

It’s a shame – just when you think he’s demonstrating true leadership he goes and makes an irrelevant and utterly futile statement in an attempt to acquire a few cheap brownie points. Of course, all he succeeded in doing was showing most sensible members of the public that the emperor wears no clothes.

Even if 100% LTV loans were still available it would not be up to the government to make commercial decisions on lenders’ behalf.

The government has already called for a return to prudent risk management – something I’m sure the Financial Services Authority will focus on if it doesn’t want to get caught with its trousers down again – so Brown making statements like this is a waste of time and makes most of us cringe.

Hot on the heels of this news came the announcement from state-owned Northern Rock that because of its earlier than expected repayment of taxpayer funds, it would start lending again. And this without a hint of irony.

The main reason Northern Rock was able to return its government funding faster than anticipated was because of its initial decision to encourage borrowers to go elsewhere by imposing punitive SVRs while taking a draconian approach to defaults.

So at a time when the government was adding layers of red tape to make lenders more lenient with defaulting borrowers – again going for the cheap sound bite – its own bank was doing the opposite.

While announcing the move, a spokesman for Northern Rock talked about returning to the market in a prudent way by offering loans to a maximum of 90% LTV, as if this was the panacea we had all been waiting for to stimulate effective risk management.

But most of us remember that Northern Rock had pretty good underwriting at one time and did not usually lend more than 90% LTV. Even its old Together mortgage was restricted to 90% LTV for the secured element. If recent experience is anything to go by, Northern Rock’s new-found lending ability will be largely ineffective.

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