now the FSA is worried that too many people now view homeownership as a means to get the asset, rather than live in the home. “To quote housing economist John


Wriglesworth ‘we used to talk about nesting not investing’.


“Homeownership is ultimately about the need to live somewhere. In the market’s peak people pushed for large housing and invested on the basis of capital appreciation. That’s not the environment of the future and I think Lord Turner is right on that.


“But you should give people the option to choose home ownership. Barriers to homeownership and restricting people’s freedom to choose where to live, not to speculate on property market, is wrong.” In his speech to Commons Grant Shapps touched on responsible lending but his language was more measured, less aggressive than that of Lord Turner. “I see responsible lending and


responsible borrowing as two sides of the same coin,” he told the House. “Borrowers will need to demonstrate financial responsibility and show that they can sustain homeownership. In return lenders will need to support creditworthy homeowners. I know the housing market is still fragile but we in government will do all we can to help.” But, at the BBA, Lord Turner said “we


are proposing to significantly strengthen the requirement for lenders to assess affordability, to ensure that the borrower is likely to be able to repay the loan”. So Shapps is for sustainable homeownership and Turner is for homeownership on a repayment basis. It might sound pedantic, but it’s a crucial differentiator.


Sustainable homeownership retains


the freedom within the market place to allow individuals the right to choose how they invest their capital, how they structure their finance, how they live. Sustainable homeownership does not


preclude fast-track mortgages, which by the FSA’s own admission show lower than average arrears rates because lenders will only fast-track lending to high credit scoring borrowers on low-risk deals. Homeownership on a repayment basis


on the other hand is restrictive. It prevents large numbers of people who are able to sustain homeownership on an interest-only basis from getting onto the housing ladder at all.


Boulger highlights the contradiction in terms. “Credit scoring does have its major defects, for example it’s not ideal for assessing first time buyers who haven’t built up much of a credit history, but it does work very well with people who have a good financial track record and the ability and willingness to pay their mortgage,” he says. “If the FSA is saying that it approves of


credit scoring to assess risk and willingness to pay, but then it’s requiring other affordability checks as well one has to ask what the point of credit scoring is? Going by the FSA’s behaviour to date, they may as well ban that too.” Insisting that all mortgages be taken


on a repayment basis prevents buy-to-let investors from running their investments in the way they see fit and in a way that is commercially sustainable. And Coogan says it will impact on the appetite of buy-to-let investors to put money into the private rented sector which will restrict supply, drive up prices while at the same time all those unable to buy a property will be forced to rent if they do not qualify for social housing. There remain vitally important questions about what a sustainable market looks like.


broker broken? Brokers are becoming increasingly frustrated. Newark-based appointed representative, Vincent Parker of Assured Financial Solutions, says regulating in this way won’t protect the people who need protecting, it will only prevent the sensible borrowers from having the freedom to plan their finances in the way they want.


“The MMR is telling customers they’ve got not choice of their own,” he says. “In my experience, there’s generally a reason for a customer wanting interest-only. The FSA has got to take into account that inflation will chew into the capital on a 25-year interest-only mortgage, and that’s how some people want to


organise their finances. It frees up money for them to make other investments. And it’s the intelligent people who do that – not the people who don’t know what they’re doing.” “We’re in a do or die situation,” he adds. “I don’t think there are any winners out of this. The FSA isn’t looking at the whole picture and they’re going too far on personal freedom. The effect will be restricting the market and that’s not good for consumers. Fewer lenders will want to use intermediaries because they’re too frightened about the risk. Competition will get less fierce and consumers will pay more.” John Heron also shares Parker’s view of the future of the market. “This comes at a time when the


regulator is also asking lenders to hold more capital and liquidity, and will adopt a greater level of intrusion into their business models and lending plans,” he says. “It can have all of these, but it must understand that it will lead to fewer, but more expensive, mortgages.” Parker seems, like many brokers, to be nearing the end of his wits. “If brokers don’t want to get bullied out of the market completely, we have to stand up for ourselves. I feel like I’m fighting every day just to do my job. I’m fed up. I’m ready to fight or die, to push me to that is extreme. I’m no activist by any stretch of the imagination.”


fighting for freedom All in all, the market is unhappy about the FSA’s proposals. They represent a brave new world, which for many looks restrictive, unintelligent and un-liberal. In “Animal Farm” the ultimate irony is in the word “equal” in that final commandment, which comes to be a relative term rather than an absolute value.


Perhaps the FSA should consider that when it says sustainable and flexible mortgage market, people are reading: “All people making financial decisions are equal, but some people making financial decisions (ie us) are more equal than others.” n


mortgage introducer AUGUST 2010 23


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