by Mark Johnston
At the start of April, there was a push to “supersize” the International Monetary Fund (IMF) into the Global Federal Reserve System that has been born out of background discussions amongst politicians and in economic circles. The tempo for this campaign has increased recently n line with the pending G20 Summit in April, being held in London.
What is essentially being looked into, at a quite serious level, is the idea of having a international Federal Reserve. This international reserve would mark a significant step towards a global government system. The crisis recently experienced has prompted advocates of this new idea to think that an international power is needed to manage and hopefully avoid issues such as the fall of entire countries from happening again due to choice lending.
The International Monetary Fund (IMF), in their Global Financial Stability Report, have recommended that powers to control the loan to value lending activities of banks and lenders in an effort to manage the crisis now and should there be any sort of a repeat down the road. They go further and wish that there be higher Loan to Value ratios, currently averaging around the 70 per cent mark. Should a borrow wish to borrow at a higher rate, say about 80 – 90 per cent, that they take out mortgage protection insurance should they falter.
The report goes on to highlight that the LTV evaluation process is a fairly blunt instrument when evaluating credit integrity and may actually exclude certain credit worth portions of the population, namely first time buyers.
A recent survey, commissioned by an insurer, revealed that 75% of Ministers of Parliament (MPs) feel that people, with stable incomes and can afford repayments should be helped onto the property ladder. This financial assistance should be provided even when those individuals don’t have the 10-20% deposit required.
Additionally, the same survey revealed that over 83% of MPs feel that their constituents need more support getting into the housing market. In London, it was suggested that this figure is closer to 100% of constituents will need support, a staggering figure.
This is great news for first time buyers, there is now clearly a light at the end of the tunnel, banks and building societies are also now responding. With the deposit remaining the biggest barrier to homeownership, it’s pleasing news to see a market reaction. The average deposit has risen from 10% to 21% in recent years but currently there are over 200 mortgage deals that will lend 90% of property value, last year there were less than 150.
The IMF said “Rather, mortgages that do not meet the strict LTV prudential limit could, for example, still be made available to those borrowers who agree to purchase adequate mortgage insurance.
“Alternatively, bank supervisors would need to assign higher capital risk weights for non-conforming mortgages.”
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