Astonishing as it may seem, some bloggers and commentators have been supportive of the debacle that is the mortgage market review, suggesting it has reined in bad lending and brought even-handedness to the sector. No doubt many of these were also devotees of the RDR experiment and still cannot see the long-term calamity that was set in motion by the regulator.
I am all for common sense but the mortgage market is no place to start searching. Illogic is king, and while the madmen lenders delight in telling me the FCA made them do it, in reality it is their timidity and fear of breaching the rules that is causing the current constrained environment.
A friend approached me looking for a mortgage. Aged 61, he was looking for a 50 per cent loan-to-value mortgage of £550,000 to age 75. Being self-employed, he intended working to that age and with a provable net income of £126,300 the repayments are well within his capabilities. Being sensible he has life insurance of £800,000 and critical illness cover of £300,000. His preference was for an interest-only mortgage where he could accumulate funds in better performing investments, make occasional capital repayments and fully repay the mortgage by selling one of his two businesses prior to age 75.
But in today’s oh-so-correct ‘Stepford Wife’ world those who profess to know far better than him have decreed this scenario impossible because it infringes on their rules. The old adage that “rules are for the guidance of wise men and the obedience of fools” has never been more appropriate.
If my friend is forced into a repayment mortgage his monthly repayments will prove too high. Equally, if the lender insists on repayment by age 65 then he cannot even apply because the simultaneous requirement of a minimum five-year term renders him, and all those aged over 59, ineligible.
I would be delighted to hear from any lender sensible and brave enough to agree with me that my friend represents a low risk. You know how to find me.
This questionable judgement also extends to the Financial Ombudsman Service, as exemplified by a recent case.
Back in 1989 an adviser arranged a mortgage endowment. In 2004, the client complained and the adviser investigated and rejected the complaint advising the client he could escalate the matter to the FOS within six months. The client approached the FOS and told them that whilst he was not formalising a complaint at this stage he was “registering his interest”.
Jump forward to 2014 and the client has now approached the FOS with a complaint. Shockingly they have accepted the complaint as within their jurisdiction. Registering your interest cannot be located within the Disp rules but whatever.
Disp rules state cases can only be considered outside of the six-month window in exceptional circumstances. An exceptional circumstance might be a debilitating illness or being abroad during the period. In this instance the FOS seems exceptionally eager to accept a case where no extenuating circumstances exist. This provides proof, if ever it was needed, that it is partisan and disposed to assist the claimant regardless of the rules, regardless of fairness and regardless of the fact that a court would reject the matter out of hand.
Alan Lakey is partner at Highclere Financial Services