Lending in the aftershock
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It's Monday morning at the Council of Mortgage Lenders' London headquarters and director-general Michael Coogan is looking cheerful, not just because his beloved Queens Park Rangers enjoyed an away win at Cardiff City on Saturday but also because the sun is shining and he's feeling good about the future.
As someone who regards optimism as an irrational response to experience I'm concerned. After all, surely it's all about getting through another difficult year - a fact mirrored in the phrase 'All eyes on us' that serves as the strapline to the CML's forthcoming annual conference.
For the past 12 months the industry has been under the media microscope and the event at the Queen Elizabeth II Conference Centre in London on November 13 is a chance for the industry to look at itself, presumably not out of vanity but more in reflection.
But back to Coogan. I ask him what issues have given him most anguish of late and how these will be explored at the annual bash. Anguish is apparently not in his lexicon but he mentions two areas in which the CML has played a constructive role in the past year.
"One was in trying to help the politicians and other stakeholders through a period of adjustment because there was less money available for lending," says Coogan. "They were desperate to limit the impact of the recession but the lending wasn't flowing.
"Second, there was the challenge of explaining the inexplicable but not defending the indefensible in more than 200 broadcast interviews last year. We had to help consumers understand that we live in a different world now."
Coogan is remarkably sanguine about politicians and regulators, given what they've been saying about banks. Apparently that's all behind us.
"When you're in an environment in which everyone has made mistakes it's natural to deflect blame onto others," he says. "While the crunch was handled badly in the initial stages the Treasury, the Bank of England and the Financial Services Authority have been working more effectively together recently.
"It's easy for the authorities to say this mess is all lenders' fault when they don't believe they would be in this situation if banks had not been playing the system - and they are right."
I am not entirely convinced.
"Perhaps, but it seems to me that two years after the fall of Northern Rock the authorities have yet to address the number one priority - repairing the mortgage funding model," I say.
Coogan agrees the wholesale and capital markets not being available to lenders has been a problem but believes the way funding will be improved is key.
"Many current government measures to open up markets are not likely to work and the speed at which investors come back is not within our control," he says. "So it's about managing a market that contains less money and setting expectations at that level."
Managing expectations is clearly a priority and Coogan says he will use the conference to show that in the past lenders have done a good job but now they are in for a tricky few years.
"It's going to be hard but in the longer term individuals will still need access to home ownership, they will still want to buy or rent out property and social housing will still need funding. So our sector has a positive and profitable future but we first need to address some tough issues."
One consequence of the crunch is that it has wrecked the government's housing policy, be it new-build, affordable housing, social housing or growing the private rental sector. I ask Coogan if the conference will address this question.
He confirms that housing minister John Healy will be speaking at the event, adding that Healy has joined the Home Finance Forum which he will attend every month with City minister Lord Myners so there will be a joined-up view on housing within government.
Coogan sees the both the forum and Healy's contribution as opportunities for the government to recognise the good things that the mortgage industry has been doing in response to the crisis.
"Arrears are being managed and repossessions are lower than might have been expected," he says.
He believes the way the problems are being approached is improving although he refutes the idea that this is thanks to government schemes.
"The most important thing is how consumers are addressing their problems in conjunction with their lenders," he says.
Returning to the subject of housing Coogan says that one of the biggest pressure points has been the reduction in new-builds.
"The building sector has now stabilised but are we going to get to the level of activity needed to meet demand - I think not," he says. "The market may now be underpinned but there's still a shortage of supply."
We've been talking about the present government but with a general election looming I suggest that the CML could soon be faced with a fresh set of challenges, including the FSA being subsumed within the Bank.
The issue isn't on the conference programme and Coogan continues to focus on the political agenda as it pertains to housing policy.
"The government hasn't got the money to deliver on its aspirations," he says. "I think there will be less emphasis on home ownership in future - I can't see government supporting ownership again the way it has done with Stamp Duty."
"But which government are we talking about - Labour or a possible Conservative administration next year?" I ask.
"Irrespective of which party is in power it won't be able to afford to support ownership," Coogan replies. "We hope the measures that are retained are those involving borrowers in need of support."
We return to the question of funding. "The conference will address the problems of specialist lenders and building societies which seem to have been singled out by the FSA," I say. "Where do you stand on the issue?"
"The CML recognises that banks large and small have problems," says Coogan. "Our role is to identify measures for each sector but we've taken forward issues relating to societies as we have with specialist lenders." "Societies face several threats. They are heavily reliant on retail at a time when this is being targeted by banks and they're also facing pressure from the FSA which does want to be blamed for further failures in the sector.
"This means higher liquidity and as we've seen in FSA proposals, lending limits are in prospect too," he adds. "Many societies have lent more than would be allowed under the proposed model so they will have to reorganise their books."
Coogan is keen on competition and the conference agenda includes a session on new entrants.
"One of the benefits the UK mortgage market is that it's always been open for new lenders," he says. He cites Standard Life Bank and Kensington as firms that made a difference and says the likes of Bank of China UK hovering on the sidelines is evidence that providers are unable to meet demand.
"We are living in a rationed environment in which there are few lenders and those that there are have limited funds," he says. "We need a wider range of lenders - a mix of models would be preferable to having a few big banks with huge market shares."
I observe that we already have a number of lenders close to that position, with one partly state-owned bank enjoying a 35% slice.
"Is that unfair competition or is it only big players with critical mass that can restore the market to health?" I ask.
"We haven't seen the largest player, Lloyds Banking Group, being particularly competitive and there is some nervousness about its position in the market", he says. "The European Commission might ask it to divest some mortgage business, but more widely the problem is lack of supply.
"We were one of the first organisations to say Northern Rock should lend again. With its re-entry we've seen a switch away from remortgaging and into house purchase transactions."
Finally, we turn back to regulation.
"The FSA is looking at big changes and so is the EC," I say. "There's also a global agenda and the worry among lenders is how this is all going to pan out, so what do you think?"
Coogan acknowledges the pressures.
"There's recently been an EC hearing on responsible lending and borrowing and there's a risk that events in one or two countries could lead to intervention on consumer protection," he says.
"But irresponsible lending is not a problem in most European countries. The shock occurred because of systemic failures but the products themselves have not been an issue. In the UK we have particular areas to look at because we have borrowing across more types of credit.
"The FSA's upcoming review of the market is focussing minds and I hope for feedback on this at the conference," he adds. "When the FSA sees that feedback it will realise there is no compelling case LSfor change in many areas.""When the FSA sees feedback from the conference it will realise there is no case for change in many areas"
Source:
Lending Strategy
