CML calls government policy ”incoherent”

It is very rare for a trade body to issue a press release as critical of the government as today’s release from the Council of Mortgage Lenders.

After outlining the various pressures now being placed on lenders by the government and the Financial Services Authority, which reports to the Treasury, Michael Coogan, director general of the CML, says: “Current policy objectives are conflicting and incoherent.

“The government needs to decide on its key priority. The tug of war with lenders being pulled in every direction at once needs to end.

“We believe the government urgently needs to review the cumulative effect of the approach it has taken in the recapitalisation process on large lenders’ willingness and capacity to lend.”

Trade bodies need to work with, among others, the government in order to further their objectives.

Equally the government relies on the expertise of trade bodies to learn about the issues on the ground affecting the relevant industry.

A good but robust working relationship between a trade body and the government is important to reduce the risk of new legislation and government policy being made without a good understanding of relevant issues that can otherwise easily be overlooked, resulting in the law of unintended consequences.

Thus calling government policy incoherent is not a step the CML will have taken lightly.

It demonstrates the CML’s extreme frustration with the current situation and in particular Government hypocrisy.

One example of this the CML didn’t mention is the now predictable call from Prime Minister Gordon Brown every time there is a rate cut for lenders to pass it on in full in their Standard Variable Rate, while most of the time the nationalised banks don’t practice what he preaches.

For example Northern Rock has only passed on half of the 1% December bank rate cut and in total only 2.35%, ie two thirds, of the 3.5% cut in the base rate from 5.5% to 2% this year.

Such a policy makes good commercial sense for Northern Rock but maybe Brown thinks only the nationalised banks should be allowed to act commercially.

I am still waiting to hear Gordon Brown to publicly call on the banks to pass on the full rate cut to savers but I won’t be holding my breath.

The stupidity of focussing on SVRs is that of the 50% of borrowers on a variable rate only about a third are on the lender’s SVR or a discount linked to it, with the other two thirds on a tracker, most of which automatically benefit from rate cuts in full.

With less than 20% of borrowers on an SVR linked mortgage the political noise about them is out of all proportion to their importance.