PM calls for ban on 100% mortgages

Permalink: PM calls for ban on 100% mortgages
by Kay Murchie

Prime Minister Gordon Brown and Chancellor Alistair Darling are calling for a ban on 100% mortgages.

The credit crunch led to most banks and building societies withdrawing these types of home loans but the Government wants to ensure they do not make a return once lending resumes to normal levels.

In the past, most financial institutions would only lend three times an individual’s earnings but the property boom led to 100% mortgages and, in some cases, 125% mortgages, which enabled borrowers to have extra funds available for solicitors and legal fees and money to furnish their new home.

Northern Rock, which is now owned by the Government, was criticised of irresponsible lending after offering 100% plus mortgages.

Borrowers of such loans were the first to default, which played a major part in the lender’s demise.

The Prime Minister has written to the Financial Services Authority requesting an urgent investigation into how these mortgages can be banned permanently.

Furthermore, Mr Brown is trying to convince banks to turn down loans for individuals unless they can show evidence that they are earning enough to be able to make repayments.