Proposals for mortgages to be graded by order of risk

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by Kay Murchie

It is understood that Chancellor Alistair Darling is planning to launch a new system which will grade all mortgages, with the least risky given a gold standard Kitemark.

The plan is to be announced in next week’s budget and it is hoped that the new scheme will make it easier for lenders to sell on mortgages to investors by providing them with greater reassurance about the quality of the loans they are signing up for.

It is understood that Mr Darling will consult with banks about the how system will operate with a view to launching the system in the autumn.

The new system is designed to re-open the market for wholesale mortgage financing. It is hoped that getting the wholesale money markets working again will provide banks with access to cheaper funding, which could result in lower mortgage rates for consumers.

The British Bankers’ Association said the proposal was an ‘interesting idea’, but said it would like to see further details as to how the system would work.

Last week, Hometrack said property prices in England and Wales fell for a fifth consecutive month in February while mortgage approvals for house purchases hit a 12-year low.

The Chancellor said a key issue now is the continued tight credit conditions in the secondary mortgage markets. The easing and recovery of those markets is essential to stabilising the housing market.

Last month, the Chancellor announced that he plans to encourage the launch of home loans fixed for up to 25 years, giving more security to struggling homebuyers.