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Product design is rarely the problem

The national press seems to be predicting that the Prime Minister is about to instruct the Financial Services Authority to ban 100% LTV lending. The idea is meant to symbolise a new era of responsible lending.

But I have serious concerns whether a blanket ban will achieve this. The thought that better lending is produced when someone has a stake in a specific property is too simplistic.

As an expert witness and non-executive director of a mortgage-audit company, I review hundreds of mortgage lending decisions and it is not usually the product design that is the problem.

The major issue is normally poor underwriting, inappropriate sales or both.

I believe the FSA’s time would be better spent ensuring that lenders’ decision-making procedures, staff control and training are sound, rather than stifling product design.

Looking back in our past product library to the types of products lenders offered as we came out of cycle last time round, in the mid- to late 1990s, there was a wide variety of negative-equity lending solutions.

The paradox for government is that a ban on 100% LTV loans may delay the turnaround in the housing market.

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