This morning my 4 am alarm call pervaded my fitful slumbers to remind me that something was happening today that could potentially be rather important. As I travelled to the BBC for the second time in a week, this time for BBC Radio 5 Live’s Wake Up To Money, I reflected on the subject in hand – today’s meeting between Grant Shapps, Housing Minister and Hector Sants, Chief Executive of the FSA.
The discussion was of course the much publicised Mortgage Market Review, (MMR) which in many people’s eyes threatens to derail any hope of recovery in the housing market and has certainly at least got Mr Shapps all fired up and even the Prime Minister himself concerned about the economic effects of the proposed regulation.
In theory, it is hard to argue with the FSA that they do mean well and want to try to ensure that we do not have a repeat performance of the past few years, but this does seem to be a classic example of locking the stable doors after the horse has bolted.
In actual fact, there is a saying that regulation should be tightened in boom times and relaxed in tough times, which is what should have happened, making the whole thing “counter-cyclical” as Andrew Verity called it this morning.
However, we are where we are and whilst some of the measures may mean well Mr Shapps is right to be concerned about the consequences.
Rightly or wrongly the housing market is important to the economy as a whole and if we cut out whole swathes of borrowers from the market now lending levels will stay low, repossessions will rise and house prices could fall dramatically.
It may seem rich to say now, but lenders have been quick at self-regulating, cutting out self-certification, high LTV lending and pricing for risk. Whilst no-one wants a return to the days when you just needed a passport and a smile to get a loan, there is not much to be gained now from, as Mr Shapps said, “micro-managing what should be a naturally competitive market”.
Limiting someone to borrowing 30% of their net income, as an example, may sound nice in theory but in practice raises many questions, not least the question what is someone’s income?
Not everyone is straightforward, should someone with children and committed expenses be able to borrow the same as a single person with no dependents and no debts? One size does not fit all.
Affordability is key and lenders now have robust affordability calculations that must surely be more relevant than simply saying you can only borrow 3 times your income.
Also, when owning a house peoples lifestyles change, it is part of growing up. The FSA seem to be assuming that people behave in the same way with and without a mortgage. Most clients I see are all realistic that their monthly “entertainment” expenses or savings will change once they have a mortgage.
Is it also really worth banning self-cert when no lenders offer this product? Or ending interest-only loans when this is a legitimate repayment method for many people. The CML do not believe interest only is detrimental to the market and neither do I. The key is around the advice process.
The focus needs to be on making sure every customer gets proper advice and fully understands the costs and responsibility in taking a mortgage, and how rates can change. Today a First Time Buyer with no experience can still borrow vast amounts of money direct from a lender with no advice and this is what needs to change.
So what do we think can be gained by today’s meeting?
Well we don’t really know if this is just political posturing or if the Governments views will fall on deaf ears, but the FSA wanted feedback from all areas and the Government of the day have every right to raise their concerns.
Whilst I do not expect critics of the MMR to be cheering as Mr Shapps waves a white paper declaring peace in our time, discussions between the two parties should have started ages ago and should be regular.
The best outcome is a sensible partnership between government, regulator, lender and broker working together to ensure customers are given all the information and tools to be able to make their own choices in acting responsibly.
In other words making sure that every person obtains the proper advice they need.