MMR could cause negative net lending for years, says CML

22 September 2010 | By Natalie Thomas

Speaking at the CML’s Future Housing Conference this morning, Michael Coogan, director-general of the CML, told the audience the MMR needs to be re-evaluated now.

He says: “Today we have a market of less than £150bn gross lending and by most industry estimates we could have a sustainable annual market of £250bn of responsible lending and borrowing. 

“Net lending is less than £10bn compared to over the £100bn in 2007. 

“The risk of negative net lending is real as we enter 2011 because of funding issues, but if the unspoken aim is to shrink mortgage debt, then this could become the norm.”

He says that as it stands the MMR will not help consumers nor create a sustainable mortgage market and more needs to be done to slow down the FSA’s steamroller.

He says the signs are not good that FSA prudential regulation of lenders will encourage their participation in long-term risk positions such as funding different housing tenures. And new conduct rules for mortgage lenders will not help borrowers meet their aspirations to become home owners. 

Coogan says: “Indeed, the unintended consequences of new mortgage regulation are likely to stifle innovation and opportunity, whether for first-time buyers, movers, borrowers who want to access their equity, those whose personal circumstances are different to the “norm”, private investors in residential property or funders of social housing.”

He questions what the MMR is, and suggests the following options.

• The FSA’s Mortgage Market Review – a comprehensive analysis of past irresponsible lending and irresponsible borrowing?
• An attempt to be a consumer champion, and demonstrate that the FSA will not fall asleep at the wheel in its future guise as the Consumer Protection and Markets Authority?
• Trying to protect consumers from themselves?
• A layer of regulation on top of prudential measures just to make sure that systemic risks from lending bubbles are removed?
• An opportunity to restrict lending and borrowing so we do not return to 2007 lending levels?
• Or an insidious attempt by the authorities to shrink the ‘debt mountain’ of £1.2 trillion by encouraging more repayment of mortgage debt than new borrowing each year in the future?

He says: “I suggest all of these may be true to a degree.” 

Coogan says if Interest-only mortgages disappear from the market it will be bad news for brokers. 

He says: “Mortgage intermediaries are reliant on a broad diversity of income sources and will be hit hard - they typically arrange the investment to back the mortgage - and yet this is a sector which is already a third of the size it was in 2007.  Is this really an outcome creating a sustainable market for all? 

Coogan says the FSA’s own research shows that had the MMR been implemented over the last four to five years, 17% of all loans that were transacted would not have gone through.

But he says this analysis is flawed and the CML will be releasing its own research into what the impact of the MMR will be on consumers.

He called on the industry to use this research to fight against the MMR.

He called on the FSA to consult with consumers about its plans in the MMR and put any reform on hold until any new regulation has been implemented by Europe.  

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