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Secret ’95% mortgage’ Talks Held by Top Lenders and House Builders

by Laura Halloway

If you’re one of the struggling first time buyers trying to get on the property ladder, help could soon be at hand.  Many of Britain’s largest mortgage lenders and house-builders are starting to consider products offering a 95% mortgage to first time buyers.

It’s been reported that secret talks are being held by senior executives from a number of FTSE-listed companies, leading lenders and the Council of Mortgage Lenders.  The aim of these meetings is to find a way to make mortgage lending easier and more accessible to those trying to buy their first home.

It’s also been claimed that the attendee list of these meetings has included Lloyds, Santander, and some of the major housebuilders in the country including Taylor Wimpey, Persimmon and Barratt.  It’s understood that one proposal on the agenda was to create a fund that would be ‘ring-fenced’ for each housebuilder and then utilised by banks to underwrite mortgages for up to 95% of the value of the property.

However, any such proposals need to be handled with great care.  After all, it was these high-risk mortgages that were thought to have contributed to the recent recession.  Moving too soon on this proposal could cause a backlash against banks and the mortgage lending industry.  However, the fund put in place would assist banks in meeting ‘increase capital ratio’ requirements in which they have to set aside capital for mortgages with low deposits.  This will help to reduce the risk should customers default on their loans.

As a result, house builders would gain decreased credit risk ratings from mortgage lenders and banks.

A potential stumbling block however might arise when deciding the amount of money that should be deposited to such a fund.  With suggestions that interest rates could quadruple within a year, some careful planning is going to be needed when implementing the fund.

Analysts also released a warning last week that new home owners would spend over half of their take-home salary on their mortgage payments once interest rates start to increase again.

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