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Stifling innovation won’t help

The government’s tightening grip on the mortgage market is frightening. With Lloyds Banking Group under majority state control, it joins the Royal Bank of Scotland, Northern Rock and Bradford & Bingley among the ranks of lenders that have lost their independence.

Prime Minister Gordon Brown’s role in this affair is not to be underestimated. Indeed, Brown himself intervened to help ease through Lloyds TSB’s £8bn takeover of HBOS last September. stop lenders from being innovative by creating products that could facilitate a return to more benevolent market conditions.

“We have got to get the balance right between serving home owners better and encouraging responsibility in the housing market,” Brown wrote recently in The Observer.

“This is a duty on banks and building societies, but we have also asked the Financial Services Authority to look at how in the future we should control new mortgages for more than 100% of house value.”

Slapping a ban on high LTV products and other deals that come with a twist is little more than a damning indictment of this government’s failure to regulate the market effectively.

It also demonstrates a lack of faith in mortgage brokers who offer impartial advice.

When statutory regulation came into effect back in the heady days of October 2004 it was a tacit admission that brokers played an important role in the mortgage market and therefore some level of monitoring was needed.

But due to lax and ineffective regulation in the wider financial markets it now seems the government would like to dispense with the broker market altogether. You only have to look at the government’s latest website designed to provide consumers with help understanding the world of mortgages at to see there’s no mention of either mortgage brokers or IFAs.

What right does Brown have to say what products your clients can or can’t have? As advisers it is your responsibility to treat your customers fairly – not the government’s to stop clients taking out affordable deals if the consequences are fully explained to them.

Stifling innovation among lenders is not the way to go about rescuing the mortgage market and in turn the economy. If anything, it will slow the return of normal conditions. Restricting high LTV products will achieve nothing if house prices continue to fall and the money markets can’t be controlled.

The concept of buyer beware is implicit in any investment, be it a home in which to live, a property bought to rent out or a place to put life savings.

As the Council of Mortgage Lenders is keen to point out, “there must be a debate about the best way to regulate mortgage lending in the future – but not yet”.

Broker activity has already dropped to half what it was this time last year.

If Brown wants to design products perhaps he should get a job at one of his four lenders and start there. Otherwise he should leave what’s left of the private lending industry to innovate.

With such draconian measures being considered I’m only surprised he didn’t suggest a ban on punters spending more than £100 per race at Cheltenham last week.

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