CML: Northern Rock and on 100% mortgages

The Council of Mortgage Lenders observes that the resumption of new mortgage lending by Northern Rock will be another factor that may help to ease the continuing lack of supply of mortgage lending to the market.

Northern Rock was a significant lender before nationalisation, and its previous strategy of balance sheet reduction inevitably meant that in having to absorb business from borrowers remortgaging away from Northern Rock, other lenders had less funding available for other lending.

CML director general Michael Coogan commented: "While other lenders will no doubt be watching carefully to assess the competitive impacts of Northern Rock returning to the market as an active mortgage lender, in overall market terms anything that improves the supply of lending is a positive.

"Mortgage redemptions funded nearly all the £18 billion of the loan that Northern Rock repaid to the government. This was £18 billion that had to be absorbed by the rest of the other mortgage lenders. By removing this market pressure, other lenders as well as Northern Rock should experience an increased capacity to lend to other borrowers."

On the other topical question of 100%+ mortgages in the wake of the Prime Minister's article in yesterday's Observer, the CML says there are side issues to consider that should not get lost, despite the inherent appeal of a simple policy such as this to mitigate risk and encourage responsible borrowing. In particular, what about negative equity products for borrowers who want to move house but whose own house price has fallen? What about shared equity loans made to the affordable housing sector, where borrowers are not asked to pay a deposit? And what about the fact that people may simply "top up" their borrowing with second mortgages or other unsecured loans on more expensive terms? These issues all need to be considered in deciding the right regulatory approach to 100%+ mortgages in the future.