Lenders Warn Against Councils Offering Loans
We reported recently on proposals from the New Local Government Network (NLGN) to allow local councils to offer mortgage loans to those individuals who are either struggling to get started on the housing ladder, or are suffering from financial difficulties with regard to their existing home loan.
The NLGN have been raising support from local councils and plan to lobby parliament after the summer break, to release up to £2 billion to local councils in order to provide loans to local people.
Whilst the proposed scheme has been welcomed by many organisations, including some banks and building societies, there are a number of lending institutions who are sounding a note of caution, with particular regard to areas such as the risk levels to the loan provider associated with this area of the mortgage market and also the stringent regulatory requirements which all lenders are obliged to adhere to when offering mortgage loan products.
The concerns have been raised by both the Nationwide and the Woolwich, who both agree that although in principle the scheme is a good idea, doubt whether local councils have the necessary experience and knowledge to take responsibility for such specialised lending.
Andy McQueen from the Nationwide said “There is a regulatory requirement to fulfil but more importantly it is around making sure the local councils understand the risk they are writing. You need experienced people to do this and ensure the systems and processes are in place to be able to write business effectively. I would caution councils. It is interesting but they will be taking on risk they might not be able to understand as well as existing lenders.”
David Findlay from the Woolwich agreed and added ”My view is anything that stimulates the market currently should be reviewed. It would be interesting to see what their scheme would be in their ability to process, risk assess and award the mortgages, while £2 billion is substantive it is not a huge sum.”
