Banks to be hauled into Downing Street over mortgages for troops

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The Independent Online

Mortgage lenders are preparing to be hauled into Downing Street to discuss making it easier for service personnel to obtain home loans.

A Government report into "restoring the military covenant", has found forces personnel often find it difficult to secure financing to buy their own homes. Issues affecting them include regular moves and overseas living which can complicate credit scoring.

The report concluded: "A significant percentage of service personnel can experience difficulty in obtaining mortgages because they have a poor or inadequate credit history. The possibility has been raised in the past of encouraging a bank or banks to offer favourable mortgage rates to service personnel, or – at the very least – to initiate a mortgage scheme which recognises the specific needs of those serving."

The report by the historian Professor Hew Strachan has called for a summit with major banks to be chaired by the Chancellor or Prime Minister, an idea taken up by Downing Street. Ministers have unusual leverage over Britain's largest lender, Lloyds, because of the taxpayers' 41 per cent stake taken after the multi-billion pound bailout of the group. Lloyds was unavailable for comment.

The Government also has huge influence at Royal Bank of Scotland, which is 84 per cent state-owned. The report added it is working with the credit-checking company Experian on difficulties services personnel face in obtaining loans. The talks could result in overseas addresses being assigned postcodes to facilitate credit-checking.

However, the issue of offering cheap rates to services personnel could prove controversial at a time when the Financial Services Authority (FSA) is preparing a crackdown on lenders in its mortgage-market review. This is set to impose strict rules on how lenders assess the creditworthiness of individuals, while banning certain forms of loan.

The Council of Mortgage Lenders (CML) said it was not aware of any talks planned with ministers, but argued that many lenders already offered concessions to troops to deal with some of the issues they face in obtaining financing, such as lacking a permanent long-term address or being based abroad.

A CML spokeswoman said: "Lenders understand that issues such as ... addresses can be problematic and would have a lot of sympathy with forces personnel. They would not want to inadvertently discriminate against them for technical reasons rather than risk reasons."

However, the spokeswoman added: "We have to make sure that lending is sound and that a borrower can afford to repay," and said lenders would be wary of "positive discrimination" on risk grounds, particularly at a time when the FSA is planning its crackdown. The CML's research says proposed restrictions would have precluded half of the mortgages advanced during the past five years from being sold.

Nationwide offers concessions to forces personnel assigned overseas, such as waiving the additional fee charged for letting their properties – typically an additional 1.5 per cent on a mortgage rate, which on a rate of under 4 per cent is significant. A spokesman said: "We are mindful of the needs of service personnel and are pleased to waive these charges."

The FSA declined to comment.

FSA pay forfeit plan bombs

Lord Turner, chairman of the Financial Services Authority, has been sharply criticised after suggesting executives at banks could be forced to forfeit two years of salary if their employers fail because of their actions or inaction.

He said making banks safer "may require that bank directors and executives are made subject to quite different incentives than those which are appropriate in other sectors of the economy". That could include "the principle that executives of banks which fail are liable to forfeit two years' of past compensation if they were 'substantially responsible'", as in the US Dodd-Frank act. Alternatively they could be banned from the industry if their decisions led to a failure or even if they failed to alert the regulator to problems.

However, high-profile regulation lawyer Simon Morris, at City law firm Cameron McKenna, said such a "retrospective regime" was "misconceived".

He said: "Individual senior managers are already subject to the FSA's loosely-worded but stringently applied standards. It would be plainly unfair to introduce a special regime to penalise a director of a bank – and no one else – who took objectively reasonable decisions that later turned out to be wrong."

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