Lib Dems push for stakeholder mortgages
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Liberal Democrat Shadow Chancellor Vince Cable is pushing for simple, stakeholder-type mortgages to be introduced.
Following the publication of the FSA’s mortgage market review discussion paper yesterday, Cable is calling for “simple and safe” mortgage products to be launched now, as he says borrowers and lenders are starting to pile back into the mortgage market.
Cable says: “Some borrowers and lenders have already decided that the housing market has bottomed out and are now piling back in. With unemployment rising and massive uncertainty in the economy this is a very dangerous game to play which is why there needs to be clear guidance on the affordability of mortgages.”
Cable says that while it is not in the national interest to pump more money into the mortgage market, a distinction has to be made between existing mortgage holders struggling to renew and in need of help and those chasing new mortgages with very high loan to value ratios, who do not.
He adds: “Better regulation of the mortgage market is welcome and it is right that self-certification should be restricted, though abuse of self-certification is fraud and should always have been treated as such.
“With such a complex mortgage market already in existence highly prescriptive rules for mortgage affordability are not appropriate.
“It is critical that a simple and safe ‘stakeholder’ style mortgage as the Liberal Democrats have proposed is introduced.”
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Readers' comments (10)
Evan Owen | 20 Oct 2009 9:36 am
I used to hold Vince in high regard but more frequently of late I find comments such as this to be naive, as are the mortgage regulation policy proposals HM Treasury has handed down to the FSA for implementation, the problem is not the products but what the lenders used to do with the packaged loans. Bundling bad debt and selling it, or finding a mug to buy it, absolves the underwriter of the loan from any liability for future default when it should not, that is where we had one of those 'collective intellectual failures' Briault mentioned recently. There are many others to come including those created by recent policy announcements by the HMT/FSA team.
Oh, I forgot about the Conservative plans, unworkable in practice.
Regulations is in dire need to balance, when will we see some?
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David McCabe | 20 Oct 2009 10:52 am
We don't need any new, simple products - they are already there if people want to use them. The issue has been irresponsible lending & greed by lenders - this is what needs to be properly regulated, not just another raft of "stakeholder" plans.
I thought Mr. Cable talked sense, but I'm afraid I completely disagree on this occasion.
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Anonymous | 20 Oct 2009 10:54 am
Is this not the CAT standard mortgage in another gise - what happened to that? Now let me think!
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Anonymous | 20 Oct 2009 11:07 am
Evan Owen is correct,its indeed not the mortgage,but where the mortgage loan ends up packaged out too, thats the issue.
We dont need more regulation,we need stability and accessability to products.
Cutting self cert will effect the self employed,who in turn are the traditional backbone of this country,and core tax paying public.Cutting self cert for employed people fair enough,but not for the self employed.COMPULSARY asu,or mppi maybe a good idea.
Vince is well off with this.
Conservatives scrapping FSA totally,and reverting back to the days of the MCCB with a mechanism (lacking under what was otherwise a good MCCB system) for complaints handling,would be a step in right direction too.
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Bill Wells | 20 Oct 2009 11:16 am
Vince Cable has started to believe that he is some kind of financial guru. He talked a bit of common sense (using the value of hindsight) when it became obvious that Gordon was a moron - most IFAs knew that he was a moron long before the BBC and Fleet Street realised the truth.
But the fact is that the irresponsible lending of a few lenders to a few 'problem' cases didn't cause the mess we're in. It was City greed, bad debt consolidation schemes a la Northern Rock, RBS and several other banks, and it was a government to keen to fill Treasury coffers with tax from the profits of the lending institutions.
Once again, the FSA is fixing the wrong problem. Indeed, with the scrutiny which now takes place on almost every mortgage application and the huge deposits most intending borrowers now have to find, the FSA is once again closing a 'stable door whilst the horse bolted 2 years ago'.
Dear Vince, we don't need more moronic comments - Gordon and the quangocrats at the FSA provide us with more than we can stomack already.
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You must be joking | 20 Oct 2009 11:42 am
This is just a further example of trying to shut the stable door after the horse has bolted.
I'd love to see the definition of a "safe mortgage"... might have a look on wikipedia later.
So client takes out a "safe mortgage", which is affordable given their circumstances AT THE TIME. A few years down the line their circumstances have changed and the mortgage is no longer affordable.
That's nobody's fault, it's just "one of those things".
So what does the "safe mortgage" give them, immunity from interest payments? That leaves the bank with a potential bad debt and we're back to 2008 again!
When will the politicians and regulators realise you can't manipulate a free market?
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Keith Curtis | 20 Oct 2009 12:07 pm
I agree with the previous comments. To lay the blame, in whatever thinly veiled disguise at the feet of the Mortgage and IFA professional is disgraceful. The unchecked greed of lenders has orchestrated this situation. Failure by lenders and banks to assess risk prudently and then to seek to blame others is unbelievable. This is where the FSA should be looking but as usual the large organisations will skate through this with the soft target small man being held responsible. It stinks. The minute crack pot politicians, accountants and Bank PR machines speak out we know we are in trouble.
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Serious Commentator | 20 Oct 2009 12:43 pm
Firstly let me say I am not a lender or biased in their favour before trying to redress the balance a bit.
It is interesting to see that everyone wants to blame lender greed but no comment is made about intermediary responsibility - pushing for higher ltv lending, lower margin sub prime, degrees of sub prime etc in order to help get their clients a loan (and to earn a living?). Just look at how many complaints there were many lenders withdrew products.
If these loans were so bad - particularly the high risk stuff - why were intrmediaries selling them to their clients? The research shows that intermediaries had by far rthe higher share of mortgages sold and they were completely dominant in the impaired credit/adverse market - almost 100% introduced by them. Many of the lenders only had intermediary sales as an outlet!
Obviously affordability could only be assessed at the time when the loan has been taken out or amended. The fact that many people have lost jobs is unfortunate but you can't stop people buying a property just because their job isn't secure. It would be fair to say Sir Fred thought his job was secure and I doubt anybody would have challenged that assumption!
It is interesting that the FSA want to consider affordability using stress testing and also not taking into account the right for individuals to re-allocate their discretionary spending. I know when I bought my first house I had to totally change my spending habits. Whilst I like holidays they had to go out of the window for a few years so why should my current holiday spending money be part of my expenditure calculation going forward?
The most surprising thing of all - although it shouldn't be - is that the FSA still believe they should protect consumers from ther own folleys. They have no more right to tell somebody they can't extend themselves to reach their dream (house purchase) than they have to stop an individual buying a top of the range sports car on HP which may go sour if rates/job etc change.
Purchasing is an emitional decision - 80% of all decisions are based on emotion. It is not in the best interest of a free society for the FSA to deny some consumers their right to take risks providing the consumer understads the potential impact of that risk and the right to lose it all.
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michael white | 20 Oct 2009 1:10 pm
Lenders "piling back in" I think not.
Quite astounding how these politicians have no shame in attempting to gain brownie points at every opportunity.
Simple facts of a recession are that many very good people lose their Jobs and have to choose between food on the table or paying certain bills.
Then there arises the need to defer mortgage payments. These very people will be excluded from the market in the relatively near future because they are not sqeaky clean and woe betide anyone with the adacity to become self employed (assuming any bank will be 'allowed' to finance such a start-up!). A combination of some credit history blips and not being self employed for at least 3 years continues the exclusion.
Lending is about risk, banks and building societies make money by taking risk. Lending, for example, a max 60% LTV to a recently self employed individual emerging from the recession is good lending business, at the appropriate rates.
But not according to the FSA and nor those sycophants disguised as politicians who agree with knee jerk policies or suggest daft ideas on mortgage products, all brought about to address the embarrassment of not doing enough to avoid certain incidents which fed the credit crunch in the first instance.....priceless!
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Jim Payne | 20 Oct 2009 1:59 pm
Policy makers at the Treasury, and to a lesser degree at the FSA, are able to look at the mortgage market from the particularly privileged positions of secure jobs, high salaries and overly generous pensions. All may be very intelligent individuals but what do they know about the self employed who are trying to be productive members of society. These people are paying their wages and later their pensions!
The Treasury failed at the macro end by not making the UK economy stronger when times were 'good'. Now they are giving the impression that they can 'put things right' by working from the bottom up, the 'micro' end, as if the 'self-cert' mortgage was the root cause of our problems.
This is a typical over reaction and just uses the current problems as an excuse for more regulation. It clamps down on the wrong problem in any case.
Other contributors have correctly pointed out that it was the packaging, re-packaging, cutting and slicing of loans on a massive scale, with no one understanding the risks or where the ultimate liability for possible default was going to come to rest. The 'Rocket Scientists' ultimately did not build their mathematical models correctly, but believed in them implicitly. This was the root cause of the loss of confidence that closed inter-bank markets more or less overnight.
The proposed restrictions on lending may possibly reduce arrears levels to some degree in the future but they are never going to prevent the type of turmoil we have seen in the past 18 months or so.
Periodically we go through economic crises. We had a crisis caused by prices for commercial property plummeting, when developers were too highly geared, which caused a number of secondary banks to have to be rescued. There was also the problem with lending vast sums to developing nations on the basis that a country cannot go bankrupt. That was perhaps just a technical point because they were perfectly able to just cease paying back the loans. After all you cannot just go and 'repossess' fixed assets in a foreign country if the local Govt. is the borrower! Thousands of millions of £'s (they weren't called billions in those days) were rescheduled and/or written off.
These problems were less far reaching in their effects than the current difficulties which have become worldwide because of the globalisation of 'Finance'.
This, of itself, is nobody's 'fault'. We can however state the bleed... obvious and say that the regulators, worldwide, failed to see the significance of this development and the potentially huge additional risks that it introduced.
Fixing this with 'simple stakeholder-type mortgages' and restrictive conditions is not the way.
Indeed taking a large portion of the population out of the mortgage market, possibly for ever, will have a much more negative effect on the UK economy than reducing arrears by a couple of percentage points.
Please thing again.
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