Government plans to “Kite Mark” mortgages

Reports in the national press suggest that the Government will use next week’s budget to introduce measures to grade all mortgages.

Chancellor Alistair Darling is understood to working on a system that will award a gold standard Kite Mark to the least risky mortgages.

The move is aimed at making it easier for lenders to sell on mortgages to investors, by providing a level of reassurance about the quality of the loans being sold.

The scheme could help re-energise the wholesale money markets, which have effectively dried up since the global credit squeeze began last summer.

Investors have been reluctant to buy mortgage-backed securities for fear they contain sub-prime debt and this has made it difficult for banks to remove mortgage assets from their books.

The new system could be in place by the autumn of this year and if successful would be instrumental in providing banks with access to cheaper funding, which would bring down mortgage interest rates.

The British Bankers’ Association has described the proposal as an “interesting idea”, although it has reservations.

A spokesman said: ‘We would not want to lose the flexibility of the UK market because that keeps it competitive. We don’t want rules that will straightjacket the market.”

The spokesman also questioned whether non-standard home loans, such as buy-to-let mortgages or loans made to people with adverse credit histories, would become stigmatised.

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