Wednesday March 12, 03:50 PM
UK BUDGET New 'gold standard' for UK mortgages given cautious welcome
LONDON (Thomson Financial) - The move by Chancellor of the Exchequer Alistair Darling to set up a Working Group to promote the creation of a 'gold standard' for UK mortgage-backed securities was generally welcomed by the industry this afternoon, although the move to introduce longer-term mortgages attracted criticism from some quarters.
The Intermediary Mortgage Lenders Association (IMLA), which represents many specialist lenders that fund themselves through the wholesale markets, said it would support the Working Group initiative and provide its expertise to assist the party. But it criticised the length of time it would take to report its findings back to the government in the autumn.
In his Budget speech, Darling said the government will start a review of housing finance to increase the availability of long-term mortgages to protect homeowners from risk.
He added the government would seek views for a framework to deliver long-term mortgages for 10, 20, or 25 years and to kick-start the wholesale money markets, adding he would report back in the pre-Budget report.
But analysts expected more details on the plans, following his commitment last month to a system in which mortgages would be graded according to risk, with the least risky loans given a 'gold standard' kitemark.
'We welcome the setting up of a Working Group in today's Budget,' said IMLA executive director Peter Williams. 'However, we note the Working Group is expected to report in the summer of 2008 and that specific measures will not be announced until the Pre-Budget report in the autumn. That is far too long to wait, and we believe progress can and should be made on this matter more quickly.'
'While this is an important initiative for the long-term health of the market, it will do little to alleviate the urgent short-term funding problems that lenders currently face,' Williams said in statement.
The IMLA is the specialist trade body representing the interests of lenders who market their products primarily through brokers rather than directly or through a branch network. Currently, over 60 pct of mortgages are sold through intermediaries.
'It is essential that the Tripartite authorities continue their programme of intervention, providing additional liquidity and implementing other measures to support the return of confidence to the wholesale markets,' said Williams.
The subprime market makes up around 8 pct of the UK mortgage market and had a value in excess of 20 bln stg in 2005. Alongside that market is the self-certification market, which makes up a further 10 pct with a value of around 30 bln stg in 2005.
Commenting on the Chancellor's move to introduce longer-term fixed-rate mortgages, the Royal Institute of Chartered Surveyors said it does not believe these mortgages would necessarily be suitable for all.
'Many borrowers will continue to have a preference for interest rates that more closely reflect underlying economic conditions,' said RICS chief economist Simon Rubinsohn. 'We also believe there is a strong case for greater transparency on mortgage arrangement fees, which have risen sharply in recent years.'
'Not only do they mask the relative attractions of individual mortgage products but, with regular refinancings, these mortgage fees are proving increasingly burdensome for homeowners, he added.
Chris Samson, head of secured lending at Deloitte, said 'a substantial industry effort' would be required to persuade the public to consider longer fixed-term mortgage products. 'Recent research by YouGov (LSE: YOU.L - news) for Deloitte, indicated that only 10 in ten borrowers would consider fixing their mortgage rate for between 10 and 25 years,' he said.
On the plan to set up a Working Group to look into establishing a 'gold standard' for mortgages, RICS said it was far from clear another body charged with the same responsibilities as the existing rating agencies would fare any better.
'Moreover, at the present time it is price volatility rather than actual credit risk that is scaring the natural buyers of these mortgage instruments,' said Rubinsohn.
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