View more on these topics

Advance warning

The Council of Mortgage Lenders has performed a huge service to homeowners and prospective homeowners with its detailed analysis of the FSA’s mortgage market review proposals on responsible lending.

The CML analysed all regulated loans in its data set (95 per cent of all regulated loans) for the four years to March 31, 2009 and assessed whether the lender would have been permitted to agree the advance under the FSA’s proposed new restrictions.

Using the more lenient of the two payment to income thresholds proposed by the FSA, that is, 35 per cent, and factoring in the other restrictions proposed by the FSA, the CML found that 51 per cent, or around four million loans granted during that period, would have had to be declined. Firsttime buyers, predictably, would have been particularly badly hit.

The FSA has admitted that its calculation that only 17 per cent of loans actually agreed would not have been allowed under its proposals was based only by reference to the PTI restriction, with all the other proposals being ignored. That is hardly a clear, fair and not misleading representation of supposed facts.

Another key aspect of the MMR that has been completely ignored by the FSA, but which the CML has highlighted, is the proportion of loans that would have been banned under the proposals but have performed with no problems compared with loans which were granted and subsequently went into arrears or resulted in repossession.

There was no evidence of payment problems in 95 per cent of the four million loans which the FSA would have prevented but 151,000 arrears cases and 38,000 possessions might not have occurred. Lenders and the FSA accept that some loans will become non-performing but most arrears and repossession cases result from postcompletion events which could not reasonably have been foreseen at the time the loan was agreed such as relationship breakdowns.

At least the FSA has not proposed adding a question to joint applicants on mortgage application forms along the lines of “do you expect your relationship to last at least as long as the mortgage?”.

The coalition owes a debt of gratitude to the CML. Without the robust evidence it has provided, the Government would have been less likely to recognise the damage the MMR will inflict on the housing and mortgage markets, with the inevitable knock-on effect on the wider economy.

In a housing market with transactions halved from the current already very low level, chains would be very difficult to complete. The large amount of economic activity generated when people move home would fall sharply, reducing VAT receipts, and stamp duty land tax receipts would fall off a cliff.

The feelbad factor of frustrated purchasers would very probably negatively impact on the coalition partners’ electoral prospects.

Ray Boulger is senior technical manager at John Charcol

Recommended

1

Rates to stay on hold till 2014, says Ernst & Young

The Bank of England base rate is set to stay at 0.5 per cent until 2014, according to the latest Ernst & Young ITEM club quarterly forecast. The report says the risks of overheating and deflation in the UK economy have both been exaggerated. As a result, while increases in commodity prices and value added […]

3

Norwich & Peterborough and CarVal offer Lifemark loan

Norwich & Peterborough Building Society has made a £1.5m loan facility available to administrators of Keydata’s Lifemark unit. US hedge fund giant CarVal has also contributed another, as yet undisclosed, amount. The loan has been provided to cover premium payments on traded life settlements owned by Lifemark that were set to lapse as early as […]

5

Ex-compliance officer of firm fined for structured product failings works for FSA

A former compliance officer at Thornton’s Law, which was fined £35,000 by the FSA last month for compliance failings over structured product sales, is now working at the regulator. Alison Slingsby, who worked in Thornton’s financial services division between 2005 and 2009, joined the FSA as an associate in January. Money Marketing understands that she […]

CSR: Alexander: Reductions will hit front line services

Treasury Chief Secretary Danny Alexander has admitted Government cuts will hit front line public services despite election promises that such services would be protected. In an interview with the BBC’s Daily Politics, he said public services would need to find different ways to deliver the outcomes people want. Alexander said: “There are some reductions that […]

European Opportunities: 'It’s nice when stock selection results in a macro tailwind'

Amid significant macro headwinds in August, Mark Page explains why his fund’s focus on stock selection has helped it outperform a falling market in August. BESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswy

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com