Grant Shapps, housing minister and MP for Welwyn Hatfield, has been vocal about the social culture in Britain and demonstratively supportive of the traditionally Conservative aspiration to homeownership.
In his first official speech to the House of Commons in his capacity as housing minister, Shapps said that he did not believe that it was right to deny the benefits of homeownership to the next generation, adding “this new government is not in the business of pouring cold water on people’s aspirations”. Unfortunately it seems that the FSA is in that business.
In spite of appearances and the ideological differences between Grant Shapps’ public policy viewpoints and the FSA’s desired future for the mortgage market, the official standpoint is that the Treasury backs the FSA to the hilt. “The coalition government believes that it is right for the FSA to ensure that the UK mortgage market has responsible lending practices. This will ensure a sustainable market that works better for consumers,” a statement issued by the Treasury said. “We will continue to work with the FSA, mortgage lenders and consumer groups to ensure a mortgage market that is sustainable for all participants.”
But Michael Coogan, director general of the Council of Mortgage Lenders believes the consultation paper on responsible lending is in direct opposition to Shapps’ speech.
“Grant Shapps talked about the age of aspiration for homeowners. I think these rules will be a barrier to people’s aspirations, affecting first-time buyers predominantly. It will kill off those aspirations,” says Coogan. “In the short term there is a real risk that this regulation will increase costs without really delivering tangible benefits. The failures identified in the mortgage market have already corrected themselves.
“And in the longer term, the imposition of these rules will impact on the size and shape of mortgage and housing markets, reducing the number of
consumers able to buy, the number of intermediaries able to service those consumers and the number of lenders offering funding.”
Robert Sinclair points to the language used in the original MMR discussion paper and says it reads as a piece on “social reengineering”.
“It talks about people having to be
protected from themselves. Call it ‘1984’ [another George Orwell novel] ‘Big Brother’, whatever you like. The bottom line is social policy shouldn’t be played out by a statutory regulator,” says Sinclair.
“These are issues which should be subject to proper discussion in the full glare of public policy debate, by elected representatives in parliament.” Boulger is also on the same page. “Limiting people’s ability to choose to live in their own home is a social decision, it should be the government making those decisions not the FSA – they are influencing things outside their remit,” he says.
“Where you draw the line is difficult because there are people who without question do need protection from themselves, but we shouldn’t penalise the majority. It’s plain wrong.” Coogan says there should be a debate about where the line should be drawn between consumer responsibility and the responsibility of financial services firms, including lenders. “We do not think it is the FSA’s
role to make those decisions,” he adds. “That should be for politicians. When the full implications of how the rules could restructure the market and the knock on implications for economic activity and mortgage lending are understood, we think there will be a call to set the responsibilities to a more balanced position between consumers and lenders.
“Consumers are best able to understand what they can afford, and lenders can’t make consumers act rationally. The answer is not to put responsibility on lenders but to give consumers the tools to make more
sensible decisions. And the solution is in our hands - money guidance.”
regulating the lenders or restruCturing the market?
The mortgage market of the future will inevitably suffer a restructure. Peter Williams, executive chairman of the Intermediary Mortgage Lenders Association, says he fears that the impending “consultation period” will not reap much compromise from the FSA. “If you look at what’s in the paper, and how much conversation was had between the FSA and the industry leading up to the publication of this consultation paper, very little has been amended. I think it’s unlikely we’ll see much change.”
Sinclair is of the view that on top of an
already constrained mortgage market where swathes of would-be borrowers are already locked out of the mortgage market because of lenders’ reduced appetite for risk, the FSA’s proposed regulation will further impinge on the market. “It’s becoming frighteningly difficult for
borrowers to get access to finance to buy a home. The plain truth is that consumers want to borrow and they’ll get money from someone. Will the FSA now regulate unsecured loans as well as mortgages?”
Coogan picks up this point in terms of policing the proposed affordability assessments. “The FSA’s approach is influenced by wanting to be intrusive to avoid wrong outcomes such as lenders not pricing properly and consumers over borrowing. Their answer is to shift responsibility to the lender because that’s easier to regulate. But it puts the onerous responsibility on the lender that consumers will always act rationally,” he says.
“Assessing affordability is logically limited to the day of application. No lender or broker can know the borrower won’t have their mortgage approved and then not go out and take out a huge balance on a credit card. There will be
mortgage introducer AUGUST 2010 21
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