Name: Richard Morea
Company: L&C
While Sunderland City Council should be applauded for taking this move, it highlights the failure of central government to have any coherent sustainable answer to problems faced by the mortgage and housing markets.
The Sunderland City Council proposal will have limited impact due to the scheme constraints. Availability is restricted to “extra care developments and new builds in regeneration areas, and borrowers must be unable to get a mortgage through mainstream lenders. They must have a 10% deposit, a clean credit and good employment history, and when coupled with a maximum loan of 3 times household income, it seems unlikely they will be able to meet the first criteria.
A well coordinated long term strategy from central government, one which draws on the experience and needs of lenders, developers, local councils and borrowers is needed. While some of the current national schemes such as My Choice Homebuy and Homebuy Direct have merit, at their launch many lenders were not supporting the schemes. Others such as the mortgage rescue package seem to be helping too few people and with funding for My Choice in the current tax year already fully allocated, and questions over whether funding will be diverted to other schemes next year, it highlights the lack of long term planning.
Central government need to work with lenders to ensure they all play a part in freeing up the lending market, and build a long term solution rather than look to regional and national schemes to pioneer the way forward.
Name: Fahim Antoniades
Company: Quantum Money
Under normal circumstances lending would be provided by banks. The money the council has had to borrow for mortgages could have been allocated instead to other areas for improving our quality of lives; such as schooling, leisure and health services for example – and ultimately this borrowing would have to be recouped through higher taxes.
Banks – being commercial entities – will have little appetite for civic duty and will push to maximise their margins at all levels. One of their key priorities is rapid recapitalisation in order to meet the new Basel II Capital Adequacy requirements as well as replenishing depleted coffers.
However, this accelerated effort comes at precisely the wrong time and at the expense of street-level lending. The best thing the government can do is to support such local schemes as no more than stop-gap whilst keeping their focus still on private sector fixes. Why not for example, buy a moratorium for meeting Capital Adequacy requirements in exchange for a more free flow of lending? Stimulus does not have to come in the guise of cash injections.
While I applaud the initiative, it is nevertheless a sad state of affairs that the banking system is so broken that local and central governments have to fill in for what should be a basic every-day private sector service. Local stop-gap measures are not going to address the bigger picture; the government needs to be more agile in its strategy and in my view, promote private sector solutions for a private sector problem.
Name: Michael White
Company: Email Mortgages
While innovative and responsible initiatives to support borrowers should be applauded, just because a council has powers to offer mortgage finance under the Housing Act does not necessarily mean they should. This is especially apparent when people who require such initiatives have been declined by mainstream lenders who prefer not to lend because of unacceptable risk associated with the individual or the security.
In this instance, Sunderland Council has stated the applicants need to have good credit histories, no rent arrears and permanently employed for three years. It has also stated that borrowers would need a minimum 10% deposit to be considered for a loan limited to three times household income and that loans would be capped at £200,000.
Even in the current conservative lending market, applicants with this profile would ordinarily be welcome by all the mainstream lenders. Therefore if such people are indeed “denied loans” one can only assume the security is suspect? This moves the focus onto the target area for Sunderland City Council, that being city regeneration areas where developers “are having trouble selling”.
I do not wish to sound too cynical and destroy the notion of a caring council and would certainly not wish to deflate the enthusiasm displayed by the Government’s Homes and Communities Agency which has very much welcomed Sunderland’s mortgage idea. However, I am not convinced local authorities maintain the requisite skills to lend millions to people that the lending experts would prefer not to, regardless of independent financial advice being offered!
