Lenders report FSA pressure on MMR, says Boulger

24 January 2011 | By Natalie Thomas

In John Charcol’s housing and market report for 2011, Boulger says: “Any further tightening of criteria in 2011 is in theory more likely to be down to lenders choosing to do so rather than being forced to by the FSA.

“However, some lenders have reported being pressurised by their FSA supervision team to adopt some of the draft MMR rules.”

But a spokeswoman for the FSA says its rules are still in the consultation period and have not been finalised.

Boulger also says lenders are failing to apply common sense when it comes to what is an acceptable repayment strategy for interest-only mortgages.

Boulger says: “The fact that one or two lenders may consider they have a problem with some of their interest-only back book mortgages is no reason to throw the baby out with the bathwater.”

The FSA’s latest thematic work on interest-only found that of the 25% of residential mortgage borrowers with an interest-only mortgage 90% had what the FSA accepted as a robust repayment plan.

Boulger says one exceptionally toxic mortgage combination pre-credit crunch was a sub-prime interest-only mortgage, but he says lenders are unlikely to start offering this type of product again.

Boulger says: “Therefore there is no point in the FSA wasting its time dreaming up new rules to deal with a problem which is unlikely to re surface before whatever regulator takes over from the FSA.

“The time to have dealt with this problem was when the product was still available.”

When it comes to the Bank of England’s base rate, Boulger predicts it will remain at 0.5% for most of 2011, although a small rise to 1% in the second half of the year can’t be ruled out.

He says it is also too early to rule out a double dip, which means interest rates will need to be kept low for an extensive period.

Boulger says a banking crisis in the Eurozone this year is likely to be the biggest threat to lending volumes.

He says: “Most major UK banks are heavily exposed to lending in Eurozone countries, especially Ireland, both with sovereign debt and interbank lending.

“If solving the euro problems means banks have to take some haircuts this will impact on their lending capacity and risk appetite.”

Boulger does however predict house prices will end the year 2.5% higher.

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