This is a significant statement of intent that says the government is prepared to use taxpayers’ shareholding in the banking system to restart lending.
Northern Rock will start lending slowly this year and accelerate in 2010, but no doubt the number of mortgage products available at the end of 2009 will be higher than at the start.
There were 40,000 mortgage products in January 2008, but this had fallen to about 4,000 by December 2008.
Northern Rock is not a solution in itself, but I would expect Alistair Darling to use his influence to get the Royal Bank of Scotland, Lloyds Banking Group and Bradford & Bingley lending again.
The government cannot allow nationalised or part-nationalised banks to focus purely on repaying government debt. No doubt the boards of these banks will be desperate to return their businesses to independence, but we need some balanced thinking.
We must get higher LTV lending going again. Even those of us who had loans of less than 70% LTV in the summer of 2007 are likely to need some stimulation to consider moving – arguably we could be now in the 90% LTV category.
So innovation is needed to beat the conundrum of lending at higher LTVs, while house prices are falling. Could this be the return of the mortgage indemnity guarantee?