Ban on 100% mortgages mooted by PM

Posted under General by Alan

The credit crunch, which forced most building societies and banks to withdraw 100% lending, are being called by the Prime Minister Gordon Brown and Chancellor Alistair Darling not to provide these types of loans, once lending conditions normalise.

PM and Chancellor are calling for a ban on 100% mortgages.

A few years ago banks and financial institutions were lending not more than 3 times an individual’s income, but started disbursing 100% mortgages and in some cases 125% loans during the property boom in the UK. This relaxation by banks provided extra funds to borrowers to pay for legal expenses and furnishing of their new homes.

Northern Rock, nationalised a year ago was bitterly criticised of irresponsible lending when it started offering 100% mortgages. Borrowers of such loans failed to pay back and became a major cause for lenders’ demise.

The Prime Minister has asked Financial Services Authority for an urgent investigation to find out ways to ban 100% mortgages permanently.

To prevent credit crisis in the banks again, PM Gordon Brown is suggesting them not to approve loans for individuals unless they furnish documents to prove that they have enough earning income to pay back loans.