05 March 2008

Telegraph: Alistair Darling plans mortgage kitemark

Alistair Darling will attempt to kickstart the wholesale markets by kitemarking the best mortgage loans, it emerged last night. The Treasury is drawing up plans to grade mortgages so that high street lenders can sell them on to investors in the money markets. The plans are expected to be revealed in next week’s Budget.

Markets have dried up in the wake of the global credit crunch as institutions are wary about taking on banks’ risks. The Chancellor hopes that grading mortgages on their quality will help reopen them by providing greater confidence in the underlying assets.

With the wholesale markets operating again, it is hoped banks will have greater access to cheaper funding. The better rates can then be passed on to mortgage customers, who have been adversely affected by the market dislocation despite recent interest rate cuts.

However, banks have warned that the Treasury move could lead to a two-tier mortgage market as less creditworthy borrowers are denied access to the best deals. Gold standard mortgages are likely to have low loan-to-value ratios, which would demand a higher deposit from the buyer, and low loan-to-income multiples.

Mortgage lenders have already begun to price their products against risk, with Nationwide recently deciding to offer its best rates only to customers with a 25pc downpayment.

The number of mortgages approved in recent months has dropped sharply, while house prices have fallen for four months in a row, leaving the Treasury concerned about maintaining confidence in the market.

By Robert Winnett

© The Telegraph