Mortgage lenders should be more responsible, say FTBs

26 May 2011 | By Natalie Thomas

Shelter is currently calling on the Financial Services Authority to implement reforms set out in the Mortgage Market Review and for the government to support this.

The YouGov poll surveyed 2118 UK adults including 156 first-time buyers.

The survey found that 79% of first-time buyers think banks and building societies lent irresponsibly before the credit crunch and over a third, 38% do not think they can be trusted to lend responsibly in the future. 

Shelter says survey respondents did not agree that easy credit was the answer to overpriced housing with more than eight out of ten first-time buyers believing that banks should only offer mortgages to borrowers who can prove they can afford it.

Other findings from the survey include:

• 83% strongly agreeing that lenders should check a borrower’s income before giving them a loan
• 75% think banks should make sure borrowers have enough cash to pay the mortgage once other costs have been taken into account
• 53% of first-time buyers agree the high cost of homes, not the availability of credit (41%), is the biggest barrier to them getting on the ladder
• And nearly a third, 28% said they had been offered a bigger mortgage than they had asked for, or knew someone that had.

Campbell Robb, chief executive of Shelter says what is most striking is the level of support amongst first-time buyers who clearly want greater protection and are well aware it might limit their chances of getting mortgage credit in the future.

He says: “So far the voice of the consumer has been completely drowned out by the mortgage industry, when in reality it is this very group who most recognise the need for stability in the market. We must not let banks go back to the old ways of irresponsible and reckless lending.”

Campbell says currently the housing minister is calling on the Financial Services Authority to delay the introduction of the MMR.

But Shelter’s survey shows 65% of first-time buyers think politicians need to be doing more to prevent irresponsible lending.

He adds: “It’s high time the housing minister stopped bowing to the banking lobby and ignoring the advice of economic experts and consumers who have sent clear signals that mortgage lenders need to clean their act up.

“We are set for some really tough times ahead as repossessions are already starting to rise and more and more people struggle under the combined pressures of VAT rises, increasing unemployment and sky high living costs. If we compound this by allowing irresponsible lending to make a return to the market, it will spell disaster for our fragile housing market and will undoubtedly result in many more people across the country needlessly losing their homes.”

Responding to Shelter’s research the Council of Mortgage Lenders says the charity seems unaware that mortgage lenders do support reform, but it is the detail of that reform that needs care if undesirable and unintended impacts are to be avoided.

The CML says it agrees with most of Shelter’s findings and the three principles of affordability tests, income verification, and interest rate stress testing.

The trade body also agrees with Shelter that government should listen to consumers, as well as lenders and others, on housing issues.

But Michael Coogan, director-general of the CML, says: “The question is not whether to implement changes to mortgage regulation, but when and how.

“Given the continuing subdued nature of the mortgage market and the tight criteria still prevalent, there is no rush and it is far better to ensure that UK and European regulatory changes are coherent and implemented in tandem.

“Far from bowing to the banking lobby, as Shelter puts it, a measured approach from regulators and government is simply good sense in a market where there are as many risks from too much regulation as from too little.”
 

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