Many people have thrown given their tuppence worth as to what could help improve the state of the mortgage market.
And the Liberal Democrats are the latest to have their say…and its definitely worth looking at their plan.
The Liberal Democrats are calling for mortgage lenders to offer a “5 year, fixed, no fees, no frills” standard mortgage option where lenders compete to offer you the cheapest rate.
They believe that the introduction of basic mortgages secured by the Government would protect borrowers from the collapse in lending by banks and building societies.
Safestart mortgages would be fixed for 5 years at a suggested interest rate of around 4.5% and would be available to those of you with a deposit of 15%, and it would come without fees. It would initially be offered to you at 85% LTV and if you kept up repayments the LTV would fall to 75% over the five-year term.
The Liberal Democrats argue that there is no place in the current market for mortgages of 100% LTV or more, given the threat of negative equity that many of us face over the next few years.
Read: Are 100% mortgages making a return?
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Sarah Teather, Liberal Democrat Housing spokeswoman, and Vince Cable, Liberal Democrat Treasury spokesman, introduced the proposal at the launch of a plan to boost social housing. Vince Cable said:
“It is critical, not only for those who may lose their homes but also for the wider economy, that we have a comprehensive plan to ensure that repossession is only ever a last resort”.
“In the future, people must have access to low risk, simple mortgages which ensure that those who have sensible deposits are protected from negative equity.”
The Lib Dems believe that safestart mortgages could be backed by a Government guarantee which would protect mortgage lenders from the risk that you may default on the loans.
However, the Lib Dems say the guarantees would more likely come from insurers. Insurers would guarantee against the depth of house price falls, rather than the asset quality of each mortgage.
Aaron Strutt, of Chase de Vere Mortgage Management, said:
"It is welcome that politicians are looking into ways to open up the mortgage market to more borrowers. The problem facing homeowners is that lenders are reducing the loan-to-value ratios of their deals, excluding more homeowners from the housing market. However there is nothing like this in the market at the moment."
- Will it break the deadlock?
The Lib Dems say their plan is designed to break the current deadlock in the mortgage market, caused by the collapse in wholesale money markets which traditionally supported new mortgage lending.
Mortgage lending fell to a record low in January, further highlighting the dire state of the housing market and thus fuelling the need for a viable solution.
Risk wary mortgage lenders are also reserving the most competitive mortgage deals for those of you with a 40% deposit. Those of you with less than a 25% deposit now face much higher interest rates.
Lord Oakeshott, Treasury Spokesman for the Liberal Democrats, said:
“We are trying to design a sensible, safe mortgage which will be the default option that every lender should offer.
“If we are going to be giving government guarantees it should be for mortgages that are safe and solid, rather than writing a blank cheque for all mortgage products.”
So, is the Safestart mortgage the practical solution that is needed to help improve the mortgage market?
If so, do you think the Government will put it into action?
let us know your thoughts in the comments below.
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