Perhaps it is of most risk to the politicians like the Chancellor? Or perhaps the regulator? Or indeed the Bank of England governor himself?
A few years ago ‘risky mortgages’ was a phrase used to define the sub-prime or non-conforming sector. Now it appears to be used in common parlance to describe high loan-to-value (LTV) mortgages despite the fact that 90 to 95% LTV mortgages, for example, have been an established part of the UK market for decades. With the criteria and affordability controls now in place it is noticeably tougher to secure such finance.
Of course, to a very great extent, high LTV lending does have intrinsically different risk characteristics to those loans being provided at lower LTV levels. For that reason you might want to refer to such products as being ‘risky mortgages’ – certainly to lenders and especially if those high LTV loans are not being protected.
And that, to our mind, is the rub. No-one can really deny that high LTV lending is necessary if we want to allow future generations to take their place on the property ladder.
Neither can we realistically argue against the fact that people should only be taking out mortgages they can afford. Therefore the measures introduced by the MMR specifically and the recent proposals announced by the Bank of England are well-intended and will ultimately cut down on the ability of borrowers to overstretch themselves.
However, in all of this intervention and action, one significant point appears to have been overlooked and that is the fact that the largest risk to the system is the massive number of high LTV mortgages that currently go unprotected. Without fully addressing this fact I’m afraid we will not have a fully planned or sustainable framework for high LTV lending in this country.
Let’s not forget that it would also aid in the fight against risk and help deliver a much more sustainable mortgage market, not just for high LTV lending but throughout the entire system.
It would also mean that ‘little and often’ interventionist measures – which we appear to be witnessing now – would not be as necessary.
Simon Crone is president of commercial mortgage insurance, Europe at Genworth
