A task too far
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Mortgage lenders are really fortunate. True, the mortgage funding gap looms like the sword of Damocles over the housing market and the economy, and as far as the next chancellor goes we haven’t got much to look forward to with either more of the same, Ed Balls, or George Osborne ending up as the economy’s next safe pair of hands.
But the one ray of light in all this darkness is the Financial Services Authority which will in one guise or another continue to navigate the industry through these difficult times. I’d hesitate to describe the organisation as safe as houses but at least it is the one constant that we can rely on in a world of turmoil and change.
What’s more, in these stringent times it offers incredible value for money. Indeed its ability to multi-task is truly astonishing.
It regulates the industry amazingly well.
True, in recent times Northern Rock foundered, Royal Bank of Scotland had to be virtually nationalised, as has Lloyds Banking Group, and the hitherto robust building society sector has seen around half a dozen societies go by the board but just imagine the carnage if we hadn’t had a regulator to watch over us.
Speaking of which, the FSA does an amazing job as a consumer watchdog – it has played a lead role eradicated dodgy products like endowment mortgages, which helped people to pay off their mortgages, and payment protection insurance policies which in the form of mortgage payment protection insurance was at one point the cornerstone of the government’s sustainable home ownership initiative.
But the FSA’s multi-tasking skills don’t stop here. It is also responsible for financial capability, so ensuring that we as adults make informed and rational decisions about how we invest and borrow and don’t fall into the trap of wishful thinking when it comes to managing our finances.
And on top of all this it is now assuming some responsibility for macro economic monitoring although one might be justified in thinking that this is a task for the Treasury or the Bank of England. Actually it probably is, as it is for the FSA. Three inputs, after all, are better than one, and there’s probably a joint economic stability task force somewhere constantly on the look out for an equity price bubble or an overheating of the housing market.
The interesting thing about this kind of mechanism is how will it work? If for example the housing market begins to seriously overheat, do the people monitoring macro economic trends tell the Monetary Policy Committee to up interest rates, or does the Bank of England, or the FSA, put a cap on mortgage credit on a month by month basis?
Back in the 1970s and in the wake of a feast to famine scenario in the mortgage market, the then government talked of creating a mortgage stabilisation fund. This would be built up when market interest rates were comparatively low, and which would be drawn on when interest rates rose against building societies (they had a monopoly of the market at the time) and their inflow of funds shrank.
In the event this was never implemented but here is the rub - instead, the societies agreed to a ‘guideline’ scheme which was implemented through a body known as the Joint Advisory Committee on Building Society Mortgage Finance.
This was composed of representatives from the government and societies and the idea was that the JAC agreed on a monthly mortgage lending figure which contributed to the stabilisation of house prices, maintained an orderly housing market, and enabled house builders to plan for a high and stable level of house building for sale.
It didn’t work and was abandoned in 1979 as a task too far.
