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The government must guarantee high LTV loans

Some people may accuse me of regurgitating ideas in this column but it’s amazing how frequently I see an idea I’ve mentioned come up as a more serious proposition a few weeks later from a more eminent personage in the industry.

Take higher lending charges, for example. Several weeks ago I suggested that, given the current lack of availability of funds for first-time buyers at higher LTVs, some sort of government-guaranteed higher lending charge might be reintroduced. Lo and behold, we now hear that Tony Ward, chief executive of Home Funding, is calling on the government to attach guarantees to all UK mortgage lending between 75% and 95% LTVs.

At the risk of quoting directly from the magazine, Mortgage Strategy reported the news that he is to submit a report detailing his thoughts to key government figures.

The main recommendations contained within his report include the need for the government to move away from focussing on funding models and provide support at mortgage level instead.

Ward argues that government guarantees for mortgage lending above 75% LTV and up to 95% LTV would work on the basis of the lender and government sharing the risk of higher LTVs. Both parties would then have a shared interest in minimising the risk.

I agree wholeheartedly. This initiative would allow first-time buyers to get back on the mortgage ladder at sensible LTV levels.

I say sensible advisedly, as by this I mean realistic deposit levels. I am seriously concerned that at present only a few privileged first-time buyers stand any chance of buying a home as they simply cannot raise a sufficient deposit.

If the government agreed to underwrite this risk by means of a guarantee it would energise the first-time buyer market – which, after all, still underpins the basis of the property market – and which could in turn see the entire market reinvigorated.

Of course if this happens it will all have been Tony Ward’s idea, which is good. If an idea works then actually I don’t care where it came from – I’m just an adviser trying to stay in business. It’s easy, of course, to criticise others without coming up with ideas oneself, which too many in our industry are prone to do.

Talking of staying in business, last week we saw the Dunfermline Building Society ostensibly being sacrificed by the government, who seemingly refused to bail out the ailing institution.

While my sympathies lie with the society I believe it’s time that the government said “no” to somebody.

Personally I believe Northern Rock should have been left to its own fate but once it had been rescued with taxpayers’ money, how could the government ignore the mighty HBOS and the Royal Bank of Scotland?

Interesting, though, that a relative minnow will be allowed to go – and a Scottish one at that.


Marketwatch 06/04/2009

Swaps fell pretty heavily. One-year swaps are now at the lowest levels I have seen since I have been writing this column and the others are almost back to their all time lows.

The diary of Doobry Wotsit

I spent the weekend before last with my wife Deidre setting up an initial strategy for my insurance desk. With all the job losses at the moment it could be a winner for me.

The future of active management is now

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