In the fall-out of any major, near catastrophic event, an autopsy is carried out and opinions fly as to why this happened and how we could guard against it in the future. The aftermath of the latest financial crises, is of course no exception.
So we have had to endure accusations and calls for various measures to be introduced ranging from the sensible, which should have been in place prior to the event, to the simply absurd and damaging.
One recent voice to enter the fray is Charlie Bean, a member of the Bank of England’s Monetary Policy Committee, (MPC).
Although suggesting that there are a raft of ways to ensure that we are protected in the future from “a portfolio of instruments”, he did point out that “introducing direct constraints on the terms or availability of credit, for instance imposing maximum LTV ratios in the mortgage market” is an option to consider.
It is this direct interference into the workings of the mortgage market that many see as cause for concern, especially as, let’s face it, lenders have done a pretty good job of naturally restricting maximum LTV’s themselves via limited products, higher pricing and tougher credit controls.
In any case, for me, loan-to-values are not, and were not, the real issue. In a fully functioning, “normal” market the real issue is around affordability. If someone borrows 95% or even 100% of the value of the property as long as it is priced accordingly for risk, the applicant has the proven ability to pay and they are fully aware of the risks of a falling market then is there a real issue?
Too much has been made of the fact that property is a short-term investment to make lots of money on rather than what it is actually designed to be – a home. As long as a loan is affordable, in many cases negative equity for a few years is not a major issue as long as there is no outside pressure to move.
For me, directly controlling the market in this way is fraught with dangers. As mortgage brokers, what we actually want is nice, competitive interest rates that are affordable, priced accurately rather than over-inflated for increased risk, plus a property market that has a good supply of realistically priced properties that first-time buyers do not have to sell their souls for to get a shed in Hackney.
Many of us also want sensible underwriting practices based on the true affordability of each individual applicant, working to understand the self employed and those with variable incomes in a manner more akin to how the market was before self-cert became the rage. Whether fast-track stays or goes is of no real consequence – that is for the lenders themselves to decide as it is a process rather than a product.
I know that by me saying that the market is capable of regulating itself will bring guffaws of laughter from many who believe that bankers are all sons of Satan and are happily feasting on the souls of us good people who have been merrily screwed. It just ain’t that simple.
In any case, and the point of all this, what Mr Bean went on to say was that “while experience of the use of these tools might be limited, it is not entirely a tabula rasa”. Now that’s a phrase you don’t hear that often!
The simple meaning for those of us who only passed their Latin exams by having the books hidden in the toilet, is Blank Slate. (According to Wikipedia it is also “the epistemological thesis that individuals are born without built-in mental content and that their knowledge comes from experience and perception”, but that’s a whole other blog!)
Suffice it to say that it seems to me that this is exactly what we need – to start again afresh with a blank slate – regulators, government and industry working together to decide the best ways forward, in consultation with the public.
A Tabula Rasa for the future, not dictatorial, but a true partnership.