This is good news for borrowers but could leave the near-nationalised lender exposed to a yawning interest rate mis-match that will only widen if the Bank of England base rate continues to fall.
The FSA says the collar has been omitted from the lender’s Key Facts Illustrations since 2005 and is therefore less than transparent. But Halifax consigned the collar clause to the small print at that time because the regulator said its 11-page KFI was unwieldy and should be trimmed.
It all added to the ‘damned if we do and a damned if we don’t’ mood of the conference, which CML director-general Michael Coogan used as a platform to launch a withering attack on the government’s failure to address the real issues facing the mortgage market.
Reminding delegates that net lending would be down from £108bn in 2007 to about £40bn this year, Coogan added that at the end of the last recession in 1995 net lending fell to £15bn and that Sir James Crosby has suggested the figure could be negative next year.
He said: “It’s not simply the sources of funds drying up that has created mortgage rationing, it’s also the substantial reduction in the number of lenders in the market compared with 2007.
“Wholesale-funded lenders have been closed to new business and the strategy of most building societies – a sector that has existed for more than 150 years to provide home ownership opportunities for members – has been to tread water.”
Coogan added: “I anticipate that a number of societies will not grow their mortgage books this year, and a few may even suffer losses due to exceptional circumstances, just like some other lenders.
“With strong competition for savings and the high liquidity expectations of the regulator, societies haven’t been able to grow their market share the way I anticipated when the credit crunch hit. As a sector, societies have less reliance on wholesale funding so the impact of the crunch on them has been comparatively less – they have a prudent business model.”
Coogan was scathing of the idea that the industry could return to 2007 levels of lending in 2009 and warned that unless the government took targeted action we would see a worsening of the picture next year.
He said the Tripartite Authorities needed to take coordinated action rather than piecemeal, self-interested decisions.
Then, with a view to getting investors back into the market, he said the Crosby proposals should be taken forward as a matter of urgency.
He declared that the chancellor’s statement that there will be a report back on the Crosby recommendations by Budget 2009 is not good enough.
Finally, on the burden of the Financial Services Compensation Scheme on smaller building societies, he said a recent survey showed the cost equated to 20% to 30% of annual profit in some cases.
Coogan said it was a nonsense that savings institutions with safe business models should be financially hit by the failure of bigger organisations with riskier models.