Until 2008 the mortgage market had been responding to demographic changes and work patterns, but now the regulator seems hell-bent on condemning many to a lifetime of renting
One way of measuring the state we’re in is to consult the statistics and there are a lot around. A simpler and more entertaining way is to attend industry dinners and lunches.
The obvious indicators here are the scale of these events which shrink on an annual basis, but don’t forget the table talk and the speeches.
Take, for example, the recent Intermediary Mortgage Lenders Association dinner, where executive director Peter Williams summarised an address by housing minister Grant Shapps as aspirational. Now that’s a nice word which the former professor of housing at Cardiff University might at one time have used to describe a student’s paper that had fallen short of a 2:1.
But it might equally serve to describe the government decision to build aircraft carriers with the idea of perhaps equipping them with planes in 20 years’ time.
In addition to Williams, my table at the dinner was graced by a director of a business close to the sector who, on commenting on the sorry state of the housing and mortgage markets, said that their 30-something daughter had recently and sadly conceded that she could never become a home owner.
Put simply, between house prices and stricter lending criteria, tenure choice is becoming a thing of the past. I wondered if there was any connection between this sorry state of affairs and a fellow guest from the Financial Services Authority who won the charity auction for a bottle of rather good whiskey.
Was drink a problem at Canary Wharf? That would explain how an agency that was both a regulator and a consumer watchdog was initiating policies that would lead to the detriment of consumer choice and financial exclusion.
On the other hand, perhaps the thought process at the FSA was simply misguided and the more sensitive among the executive team were drinking to drown their conscience.
Of course, I’m being mischievous. The bid for the bottle was a generous gesture to support Shelter, whose workload is set to increase thanks to the aspirational nature of government policy and spending cuts.
Shapps at least delivered his speech. Treasury minister Mark Hoban no doubt aspired to address the Building Societies Association annual lunch in November as was billed, but didn’t manage to turn up.
Instead he left it to Alison Cottrell, director of financial services at the Treasury, to deliver his message and having listened to it, it’s easy to understand his decision to delegate.
Cottrell acknowledged the important role of the building society sector and emphasised how the government wanted to encourage saving. The irony being that at that moment Hoban was in parliament overseeing legislation to end the Child Trust Fund scheme, while on the same day SAGA was highlighting the plight of pensioners who, as result of low interest rates and inflation, had seen their income from savings fall by over 30%.
But irony wasn’t Cottrell’s strong point while David Webster’s introductory re-marks as chairman of the BSA seemed to have completely missed its mark. He voiced concern about the mushrooming programme of regulatory reform.
“Net advances in the residential mortgage market have fallen from an annual figure of about £110bn in the four or five years running up to 2008 to perhaps £10bn this year,” he told delegates.” Few UK industries will have experienced such a precipitous decline in activity.
“We’re having the Mortgage Market Review and we’re going to have the European Union’s responsible lending policy. More onerous and expensive liquidity arrangements are already with us and we’re having capital requirements increased and more tightly defined. And we face an overhaul of the regulatory systems as the FSA disappears and is replaced by a new system, with the Bank of England at its heart.”
Rather than acknowledging these concerns, Cottrell stuck to her script which amounted to a list of acronyms for all the new agencies and bodies that the government was in the process of introducing, like the Prudential Regulation Authority, the Consumer Protection and Markets Authority and the Financial Policy Committee.
These, together with the implementation of the MMR, will herald a brave new world of financial stability and consumer protection. Well, that’s the aspiration, but the consequences could be different.
Independent research conducted for the Council of Mortgage Lenders in October shows that had the FSA’s responsible lending proposals been in place from 2005, about 3.8 million good loans would potentially not have been granted.
Further research in November measured the impact on lending levels this year if proposals in the MMR had been implemented in January, notably a requirement to assess a borrower’s ability to repay on a capital repayment basis, even if some or all of the loan is interest-only.
There is also a requirement to assess the ability to repay over 25 years, even if the actual repayment period is longer, a requirement to apply a buffer to the affordability test for borrowers with an impaired credit history and a requirement to test the ability of the borrower to pay at higher rates.
Given that lending criteria are now conservative, the impact on the current market might have been muted, but the statistics tell a different story.
If all the proposals had been in place, their combined impact could have affected 45% of borrowers this year, compared with the 51% of loans that could have been affected between 2005 and 2009.
Put starkly, had these proposals been in force in January, of the 567,000 loans advanced to August, 260,000 might not have been granted on their current terms.
In other words while the mortgage market up to 2008 had been responding to the changing demographics of the UK and the trend to more flexible patterns of employment, with a range of products to meet different needs, an unrepresentative body is now hell-bent on condemning a growing section of economically active people to a lifetime of rented accommodation.
All this is a result of an aspiration to avoid another Northern Rock and not only is the price too high, but the situation is also unconstitutional.