I was either brave or foolish when, in 1969 at the tender age of 22, I bought a house with a mortgage despite the fact that there was no Lord Adair Turner or an industry of quangos to watch over me.
In retrospect I should’ve been terrified. I didn’t have an NVQ in financial capability and my broker was probably unqualified, yet I don’t recollect being shafted by anyone.
Some things have changed since then though. Tenure choice has improved and people settle down later, but despite the proliferation of mortgage products, the fundamentals of house purchase remain the same. The mortgage is granted against the security of a property, the ability to repay has to be taken into account as do the condition of the property and the legitimacy of the title.
Yet today the best brains in the country are being wasted on ever more complicated procedures to do the same job as lenders and brokers did half a century ago without the fuss or cost that burdens today’s homebuyers.
I’m sorry but despite all the hyperbole, buying a home is almost as simple as buying a car with a loan, except that the homebuyer has to pay for a valuation, the conveyance and a mortgage arrangement fee.
That said, parts of the Mortgage Marker Review border on the absurd and should be used in evidence against the FSA, rather than as a platform for the future. I’m referring to the responsible lending proposals which, as Turner says, represent “a major switch” in the “FSA’s willingness to intervene in the free market relationships through which borrowers and lenders would otherwise make their own free choices about appropriateness, risk and return.”
They’re not only unnecessary – the mortgage market crisis was not a failure of regulation but of supervision – but also unworkable to the point of being a farce as Bob Young, managing director of CHL Mortgages implied recently.
At a meeting with the FSA he’d asked, “What exactly do you want us to know”? What if the borrower had a kid in private school, he postulated, and his wife was about to have another child? The likelihood, he had told them, was that they would send that child to private school. “Therefore “, he said, “you have to take into account the school fees at that point of the loan, or do you go on and say, well actually you can’t afford to so I’m going to take that one out so you actually have more disposable income.”
The MMR proposals could end up making it far more difficult for people to get mortgages. It would be better for Turner to focus less on the minutiae of mortgages and more on the grander matters of macro prudential regulation through the newly established Financial Policy Committee.
This needs all the help it can get as does the newly created Consumer Protection and Markets Authority which is intended to act as a single integrated regulator focused on the financial markets.
Just how all these bodies, together with the Monetary Policy Committee, the Office for Budget Responsibility, and the Financial Responsibility Committee, will work together remains to be seen – all cooks in an already crowded kitchen.