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Call for guarantees on high LTV home loans

Tony Ward, chief executive of Home Funding, has called on the government to attach guarantees to all mortgage lending between 75% LTV and 95% LTV.

Ward has written a paper entitled Kick-Starting the Mortgage Market which is being sent to key government figures.

Recommendations contained in the paper include the need for the government to move away from fo-cusing on funding models and instead provide support at the mortgage level.

Ward argues that government guarantees on mortgage lending between 75% LTV and 95% LTV would work because both the lenders involved and the government would have an interest in minimising risk on the loans.

He also wants to see the current surplus of mortgage-backed securities being removed from the system in order to set what he calls proper values for new issues.

Ward said: “Some good thoughts have emanated from the Bank of England and the Treasury but there is a risk these institutions will get bogged down in minor operational details.

“We should not try to fix banking, instead we need solutions that put money directly into the hands of aspiring home buyers and struggling owners.”

He added: “By attaching a guarantee to mortgages we can move away from worrying about whether banks should be assisted and look towards a more holistic approach to helping our ailing economy.”

Meanwhile, Exact believes one solution is for the government to reinstate local authority mortgage lending, which it believes would kick-start local markets and take the pressure off high street banks.

It has generated a discussion document arguing that specialist lenders should white label mortgage origination for councils.

Exact is currently lobbying the government to divert its funding to reinvigorate local authorities as a force in the mortgage market.

It says the interest rate below which local authorities are prohibited from lending, the Standard National Rate, was set too high to make council mortgages competitive with private sector lending. But the SNR has now fallen to 3.93% – its lowest ever level.

Alan Cleary, managing director of Exact, said: “Reinstating local authorities as mortgage lenders would mean the government could bypass banks’ red tape and get cash back in the hands of individuals who want to buy houses.

“The government is relying too heavily on one part of the mortgage market – the big high street banks.”

Cleary says these banks can’t afford to lend because there is too much damage to be repaired first.

He added: “The government is ignoring a significant part of the mortgage market, which is littered with specialist lenders paralysed by the lack of wholesale funding.

“If it is serious about boosting the cash available to borrowers, why doesn’t it give some of its billions to local authorities that could lend to consumers using specialist lenders’ origination expertise? This would put taxpayers’ cash directly into the hands of people who will spend it.”

Birmingham City Council has announced plans to set up a Bank of Birmingham which would offer loans and banking services to local people and businesses.

A spokesman for the council said: “Plans for a bank are in the pipeline and one of the products we are considering is a mortgage.

“Our local market needs to be stimulated but we are still looking into whether a local bank would be the best way to achieve this.”

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