The Liberal Democrats have recently proposed a ‘Mortgage Protection Fund’ to help homeowners struggling with their mortgage payments. The fund would be funded by a levy on banks and building societies, and would provide a safety net for those who are unable to make their mortgage payments due to a change in circumstances. However, the Intermediary Mortgage Lenders Association (IMLA) has criticized the proposal, arguing that it could have a detrimental effect on the mortgage market.
The IMLA has argued that the proposed fund could lead to an increase in mortgage defaults, as borrowers may be more likely to take on larger mortgages than they can afford in the knowledge that they will be able to access the fund if they are unable to make their payments. This could lead to an increase in the number of repossessions, as lenders would be forced to take action against borrowers who are unable to make their payments.
The IMLA has also argued that the proposed fund could lead to an increase in mortgage costs, as lenders would be forced to pass on the cost of the levy to borrowers in the form of higher interest rates. This could make it more difficult for those on lower incomes to access mortgages, as they would be unable to afford the higher rates.
Finally, the IMLA has argued that the proposed fund could lead to an increase in irresponsible lending, as lenders may be more likely to approve mortgages for borrowers who may not be able to afford them in the knowledge that they can access the fund if they are unable to make their payments.
Overall, while the Liberal Democrats’ proposal for a ‘Mortgage Protection Fund’ may have good intentions, it is clear that there are a number of potential drawbacks that need to be considered before it is implemented. The IMLA’s criticism of the proposal highlights some of these potential drawbacks, and it is important that these issues are addressed before any decision is made.