Morning Line: Hands off our mortgages!

It was encouraging people to take out mortgages they could not afford that gave the banks the rotten eggs they began the crash by trading.

It was the excessive lending that contributed to the present crisis, then there was boom of about ten years and their is the bust now and every one is made to feel the pain and yet actions suggested to curtail excessive lending by FSA is critised! I remember years ago the rule of the thumb was monthly mortgage paymnet should be about a week to two weeks of monthly wages and every one coped. It appears the rule of the thumb nowadays is to live in debt and await the consequences as it is now.

What housing ladder?

I only see a snake.

Perhaps the FSA sees the same.

Pro-property bubble Lorna strikes again, cheer leader of the buy to let investors!

The CML reaction to the FSA was reported yesterday and the consensus amongst the comments from citywire readers agreed that the FSA guidelines are sensible and might help to avoid another boom & bust!

There are two sides to every coin. On one side is the easy mortgage with few questions asked and which often leads to bad debts, repossessions and booming house prices. On the other there is deepest prudence, strict criteria and that would lead to minimal bad debts , criticism of lenders and much lower and more realistic house prices. A middle ground requires one to throw a coin in the air and hope it lands on the edge - very difficult

For Lorna to pretend she is concerned about people not being able to afford to get on the housing ladder is a joke. She is clearly interested in perpetuating this ridiculous idea that massive house inflation is affordable and sustainable, if only those silly regulators would allow the banks to lend as much as they like.

Keeping UK interest rates low and stable would help enormously (govt job). Forcing lenders to lend fixed rate money for up to 20, 25 years, as per the USA woudl help (govt and lenders job). Insisting lenders accepte weekly / fortnightly mortgage payments would also help borrowers pay down their mortgage far quicker (lenders job).

Yet none of these proposlas have been mentioned. Why? Is it simply because lenders profitability would be affected. So is it OK to hit borrowers so long as lenders can keep raking in disproportionate profit to the risk they are taking? Just what are government and lenders going to do to participate in addressing these woriies other than passing the parcel onto the borrowers?

Oh and another thing, now I've started!!!! When mortgage regulation was introduced in 2004 for the first time the FSA decided not to regulate Buy-to-Let mortgages, in the majority of cases. Buy-to- Let snowballed and exacerbated house price inflation. IFA's, mortgage brokers and AIFA shouted for mortgage regulation to be extended to BTL's yet it never happened. Lenders knew BTL was an easy way around certain lending criteria yet they were happy to turn a blind eye because of bottom line profitability.

During the 1980's when mortgage borrowers couldn't borrow 100% mortagges they's borrow c90% from a lender and the balance 10% from an insurance company (top-up mortgages). Anyone remember those? The rampant unemployment of the late 70's and early 80's didn't give rise to the type of new FSA regulation being proposed at the moment. Either the FSA don't know their history or they are choosing to ignore it. Either way, dangerous.

No one, not lenders not the FSA should impose artificial lending criteria. For example, allowing someone to borrow 4X salary isn't necessarily a good idea although it's a reasonable starting point as long as they have the ability and discipline to repay. Equally someone who needs 6X salary to buy the house they want shouldn't necessarily be refused. What we need here isn't stupid regulation which has unintended consequnces of excluding perfectly reliable borrowers but an improvement in professionalism standards and an understanding of basic good lending standards.

Why are mortgage borrowers not subject to the same professionalism standards as Financial Advisers will be post RDR?

Why rely on credit scoring style lending practices? It allows some irresponsible people to borrow money they can't afford and prevents responsible borrowers from getting credit they're perfectly good for.

When i started to be involved with "home loans" in the 1980's with one of the "Big 5" banks. We had strict lending limits of 2 1/2 times the "man's" salary. Later this was extended to 2 1/2 times the man's and 1 times the wife's salary. "Partners" and "girlfriends" were not allowed to be included. However, it was the disregard of this criteria that has led to the excessive inflation in the housing market and we now have to have these ludicrous multiples of salary and "uncertified" mortgages to enable people to get on the housing ladder. Another problem is the use of "credit scoring" which allows the Marketing Departments of the banks & building societies to manipulate the criteria so that they can achieve greater "market share". I fear that to go back to prudent lending principals is now nolonger possible as it would cause a collapse in house prices and put people into negative equity.

Is the author a mousepiece for the lobby group in question (the CML)? The article is void of any reflection, challenge or criticism. Any 1st year student would fail his/her exams if (s)he had submitted such an argument.

Here just three of the many erroneous claims the author makes:

1) “The mortgage market has helped millions of people to own their homes”.

Wrong. Figures by the Department for housing (DCLG) show that in the boom period 1997-2007, the number of owner occupied households increased by only 7% (from 13.6 to 14.6 million), whereas to total UK mortgage debt, which rose by 200% (from £400n to 1,200bn, expectedly in line with UK house prices, which also rose by 200%).

As can be expected in a country with static (or slowly growing) housing supply, the relaxation of lending standards and expansion of lending (by ‘importing’ US wholesale funds) does nothing to increase home ownership but a lot to inflate house prices and make home ownership ever more expensive.

2) “The mortgage market has been successful”.

Wrong. According to the National Audit Office, since the onset of the crisis in 2007 the mortgage (and overall financial services) industry had to be supported by £850bn of taxpayer subsidy to keep it afloat at all. This is an unprecedented externalisation of costs and risks from the borrower and the lenders (as the two parties that entered the transaction) to wider society. There could not be a more damning verdict of the failure and unsustainability of a market than this.

3) “Arrears and repossession rates are low, so there is no consumer detriment”.

Wrong. The low arrears and repossession figures quoted by the authors are due to an artificially benign environment created by the £850bn of taxpayer support mentioned above. Without the Credit Guarantee Scheme (£250bn), the Special Liquidity Scheme (£200bn), bank bailouts (£100bn+), artificially low Bank of England interest rates, and other measures, arrears rates would be much higher, house prices much lower, and negative equity much greater.

So the detriment exists, but consumers and lenders have so far been shielded from it by generous handouts by the taxpayer, including the 30% that do not own a home.

MIRAS existed historically helping older borrowers albeit no longer available to today's FTB's. Perhaps MIRAS should be reintroduced? High interest rates usually accompanied periods of higher inflation which helped reduce the mortgage debt faster than today's relatively lower inflation rates. Historical economic situations also helped homebuyers in a way that today's FTB's are not able to benefit from. Finally, lenders could consider extending the average mortgage repayment term to allow a house to be purchased by 2 or even 3 successive generations? There are many more options worthy of consideration in addition to the FSA's limited proposals so far. My favourite personal proposal to assist the UK housing market which I woudl like to see happen is the ability of homeowners to withdraw funds from their pension and pay down their mortgage on a £1 for £1 basis. If that means depleting the pension fund so be it, bearing in mind the unencumbered property could be remortgaged in the future post retirement using equity release to help boost pesnion provision at that time.

Couldn't have put it better myself Basil - excellent comments, particularly point 3.

Instead of moving away from a debt-ridden society and learning lessons from the past, the "experts" (in massive quotes) seem intent on merely extending the debt and printing money ad infinitum to kick off hyper inflation.

The lunatics really are in charge of the asylum.

Dear Lorna

I'm sorry to say UK plc can't afford house prices at the level they are now. In real terms they have a long way to fall. If I was you I'd be advocating for fiscal QE. Nothing else will keep nominal house prices where they are while they fall in real terms.

Slightly biased article! Having only 2.17% of borrowers in arrears, with the base rate at 0.5%, does not imply that lenders have been responsible by any stretch of the imagination. The BofE bailed the borrowers out.

What do you think will happen if the base rate returns to 5%?!

Lorna, you really should think this through before you publish such articles.