Lib Dems propose Government-backed starter home loans

Published 20th Feb 2009

Safestart mortgage would be available to borrowers with a 15 per cent deposit at a rate of about 4.5 per cent


The Liberal Democrats have called for the introduction of basic mortgages secured by the Government to protect borrowers from the collapse in lending by banks and building societies.

Safestart mortgages would be fixed for five years at a suggested interest rate of around 4.5 per cent and would be available to borrowers with a 15 per cent deposit. There would not be any fees attached to the deal.

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 and protect the construction industry.

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 lenders from the risk that borrowers may default on the loans. The scheme would be similar to proposals outlined by Sir James Crosby, the former chief executive of HBOS, in a report on the mortgage market he released last year.

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."

The plan by the Lib Dems is designed to break the deadlock in the mortgage market, caused by the collapse in wholesale moneymarkets which traditionally supported new mortgage lending.

Mortgage lending fell to a record low in January, further highlighting the dire state of the housing market. Lenders granted £12.4 billion in mortgages last month, down 8.4 per cent from £13.5 billion in December and down 52.1 per cent year on year, figures from the Council of Mortgage Lenders show.

Risk-adverse lenders are also reserving the most competitive mortgage deals for borrowers with a 40 per cent deposit. Homeowners with less than a 25 per cent deposit face much higher interest rates.

Source: ' Times '

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