Ban on 100% loans signals ”first shot” on government intervention

Prime Minister Gordon Brown’s call to ban mortgages of over 100% LTV could mark the start of a slippery slope on government intervention in the mortgage market, industry insiders have warned.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, says: “This is the beginning of a process of control and regulation over the mortgage industry and a more precise product form than we have seen.”

Williams says Brown’s instruction to the Financial Services Authority to control 100% plus mortgages, revealed in The Observer newspaper yesterday, is “the first shot” in increasing government regulation of the mortgage market.

He adds: “The reality is that borrowers need 100% loans. The government needs to give more thought to how 100% mortgages can be granted safely, rather than banning them altogether.”

He also argues that there will always be a demand for 100% LTVs.

This means that if there is a ban buyers will simply find other ways of borrowing, such as credit card loans, as a means of securing a mortgage.

The Council of Mortgage Lenders shares these concerns.

A spokeswoman for the trade body says that home owners may look to top up their mortgage with unsecured debt if a ban on 100% plus loans come into force.

She says: “Everyone understands the appetite to move away from 100% mortgages in the mainstream market.

“Having said that, there are always other issues to consider. One obvious one is on shared equity mortgages, and I don’t think the government would want lenders to stop doing those.”

She says that Brown’s proposals are “superficially attractive” but adds: “It is something needs thinking through in a logical and coherent way.”