Lib Dems miss the point

They were almost there and we can see where they are going, but the Liberal Democrats were just a little too wide of the mark.

The party is asking lenders to offer a five-year fixed, no fees, no frills standard mortgage option where lenders compete to offer the cheapest rate.

As we report on page 4, dubbed SafeStart, the vanilla product would be offered to borrowers at 85% LTV, funding would be provided in the form of guarantees from insurers or from the government, and lenders would compete to offer the cheapest product to fit the criteria. In the grand scheme of things it sounds good, and as the Lib Dems say, this is “more Aldi than Waitrose”. And with lenders competing on pricing, there could even be room for brokers in this market too.

The Lib Dems have gone out on a limb and it’s the first political party to try to redraw the lending landscape. But at 85% LTV not only have they forgotten the first-time buyer sector – which needs to be revived to kick-start the housing market and the economy – but also what makes the lending industry tick.

Innovation is the key word here and to be truly competitive and to offer choice to consumers, lenders cannot be constrained by such tight criteria. As we suggested five months ago, a vanilla government-backed mortgage offering a standard 5% five-year fixed rate for borrowers with 5% deposits, renewable five times and available up to 5 x income makes much more sense as a starting point.

Government-backed lenders could still compete on price and the resulting flow of money would enable them to develop other product offerings too. This is one idea that other political parties should not turn yellow about.