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Alan Lakey: Is the MMR another example of the nanny state?

Does the MMR qualify as yet another insidious form of nannying or a more socially responsible way of doing things?

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We have entered a world where important decisions are being made for us, regardless of whether we agree and despite evidence that rich veins of stupidity taint the method being used.

The Mortgage Market Review is an initiative intended to promote “responsible lending”. Regulatory logic says it will curb foolish lending practices and result in lenders protecting overenthusiastic borrowers from themselves.

FCA chief Martin Wheatley has stated that consumers are illogical, so it is no real surprise the regulator favours lenders herding applicants into yes and no boxes based on their views of what is correct. This begs the question of whether the MMR qualifies as yet another insidious form of nannying – a “we know better than you” attitude – or whether it is part of a more socially responsible way of doing things. 

As with many questions, its answer probably falls somewhere in between the two. Some years back lenders were so eager to gain market share they eased their quality control to the point where almost anybody could obtain the loan they wanted at the appropriate rate. Equally, the market forces argument states that lenders should be free to lend to whomsoever they wish at whatever rate they deem acceptable – without promptings or threats from the regulator.

Nanny knows best?

Nannying is a despicable ethos popular in progressive circles, symbolising a world overseen by non-elected individuals and countless committees and working groups that instinctively know better than us how to spend our money, how to live our lives and also how to conduct ourselves. Eternal students, professional committee-sitters and generally those who have never actually worked sit planning our lives and devising stratagems, all aimed at reducing personal responsibility for the good of the whole. Who can trust the do-gooder when he smiles sagely and explains that it may cause pain but ultimately is for our own good?

With the MMR we have the classic situation, repeated countless times in the past, where institutions eager to avoid falling foul of the regulator devise processes and rules that refuse the sweet taste of logic and the enervating zest of reason. For the regulator, which has contrived this situation, it is all too easy to argue that this is commercial judgement at work whereas to experienced mortgage advisers and, frankly anybody with a functioning brain, it typifies automated process over rationality.

Chink of light

Wheatley’s subsequent comments that “some lenders are not approaching the rules in the spirit that they were intended” provides a glimmer of light that the regulator realises the negative outcomes that process over rationality will always deliver.

The financial services industry is not alone in this transition from free markets to over-regulated processes. This creep can be seen in the enthusiasm of various bodies and quangos to protect people from themselves. Schools cancelling parents’ races at sports day for fear of the legal consequences of an injury, warnings on packets of nuts that they may contain nuts and roads rendered barely navigable by interminable speed bumps and chicanes.

This skulking enthusiasm for a politically correct ethos – a world where nobody is offended or discommoded – typifies the route that financial services is taking.

When viewed through outsiders’ eyes, this mad pursuit is clarified and becomes even crazier because the foundation of the personal financial services industry was insurance, a product designed to mitigate risk. 

One might reasonably imagine this type of product receiving wholesale support from the politicians and committee-monkeys, yet this massively important section of the industry is ignored and given little credence. 

Less scope for interference

Maybe insurance policies providing financial independence represent bad news for nannyists. It certainly provides less scope for interference and less support for their own existence. Labour MP Margaret Hodge defended nanny policies in a speech at the Institute for Public Policy Research on 26 November 2004, stating: “Some may call it the nanny state but I call it a force for good.”

Another indication of this relentless creed is provided by the FOS. A firm was arguing with the Financial  Ombudsdman Service over jurisdiction of a complaint and during this process the adjudicator wrote suggesting that the firm might like to make a goodwill payment to the complainant who was suffering stress due to delays the jurisdiction debate had caused.

When discussing this with a friend it provided the response that too many people are getting in the way. We talk glibly about streamlined application processes, guided advice and simple products, yet conversely obstacles are purposely placed in the way of every reasonable transaction. 

If we could remove every rule, process or person that did not assist the advice/product purchase process the financial services industry and ultimately the consumer would be far better off and costs would tumble.

Alan Lakey is partner at Highclere Financial Services

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Spot on Alan, but this regulator has gone even further and not only destroyed the retail part of our Industry but now is destroying the bedrock of our society Housing/mortgages. It will be the Rich landlords getting richer and the rest of our poor souls (our Children) renting for the rest of their lives!

  2. Alan,

    I think you have just successfully demonstrated why MMR was actually required in the first place! It is always interesting to hear the point of view of why better checking procedures on mortgages are not needed when we have house prices in some areas increasing due to silly amounts of money being lent.

    Have we not learnt anything from the 1989 and 2008 lending crisis? Yes I do use 1989 as an example as many of the general public are not aware of how close some Building Societies came to be in trouble after the property crash and the millions that found themselves in negative equity up to the reverse of the market in 1997.

    As usual none of your articles have any mention of consumer outcomes which I find particularly worrying.

    If you are worried about the buy-to-let market pushing up rents and cash buyers in this market pushing up capital values, then maybe you should be complaining for changes in the tax system to drive behaviour or even rent controls like France and Germany.

    Personally I would remove tax relief on interest and all residential property including buy-to-lets, this had a desired effect on cooling the market in the 80’s when MIR was removed from personal mortgages.

  3. Although very interesting this debate is a philosophical one and therefore has no right or wrong answer. There is a spectrum that starts with total personal freedom and non-interference at one end (i.e. anarchy) and total state control at the other (e.g. Orwell’s 1984 or North Korea). Most people will place themselves somewhere in between and in practice it will ebb and flow depending on the incumbent government and their philosophical take. Democracy is the only control on it going too far one way or the other. You can state your case all you like but you can’t use logic to argue someone out of a position they hold emotionally or through philosophical belief.

  4. Dick Sprinkler 27th June 2014 at 1:54 pm

    You are a funny old sausage Peter Herd.

    How many mortgages do you advise on Peter ? not many I wager !

    As a result of MMR 40% of the market either is or will be a mortgage prisoner – consumer outcomes eh ?

    I tell you what is worrying some of your pontificating on this forum

  5. And why did we get to the position where we have mortgage prisoners?

  6. @ Peter Herd.

    There are too many cooks Peter and it is worrying that you are trying to sneak into the kitchen as well.

    Most regulatory interferences end with consumers worse off and the MMR is but the latest example.

    If you have actually read the articles I have been penning since June 2007 you will have realised that I am in favour of freedom and choice and that the regulatory impact has been to diminish both.

    Might be best if you were seen but not herd.

  7. @ Peter Herd.

    You seem like the guy who would throw the baby out with the bath water.

    Everything my Company does and I hopefully can add Alan’s Company as well, is to put our Customers/ Consumers first and the outcome is of paramount importance.
    All we are saying is that the regulator has time and again taken a sledge hammer to crack a nut.

  8. Dick Sprinkler 27th June 2014 at 3:26 pm

    Now I know you don’t know what you are talking about Peter !

  9. So what you are saying Alan is that you want to see no regulations, for banks to lend recklessly and for the housing market to boom and possibly end up with either end up with the banking bigger than the 2008 crash or interest rates where they were in the mid 90’s e.g. 15%?

    I think I know which side of the debate I would rather be on! As well as MMR we also require some form of rent control when you have a shortage of property, along with building more houses.

  10. I agree with Grey Area and there are elements of what Alan says I agree with and elements of what Peter says I agree with. To come to a formed conclusion BOTH need to be Herd or is that HEARD.

  11. What did my head in at day release college in the early 80s was opposing economic theories which had elements which you could prove in the real world and elements which were ballony. Keynes v monetarism. Same problem active v passive or wrap v product.
    the problem is box ticking and pigeon holing. By all means operate a model for MMR, for portfolios, for loans, for FOS decisions, for ISO standards BUT you need a human to stop a guaranteed LOSS, to stop a compliant process ending in an undesirable outcome and so on.
    Advisers ARE the human intervention required to balance the nanny state, but they are being emasculated by the box tickers and computers.
    Ironically the vast majority of documented F pack rules including the MMR I agree with it is the F pack staffs human intervention which cocks up the implimentation OR with the RDR, the RDR was suppsed to have an RDIP but it dissapeared with all the aeguing.

  12. Very much like the 2nd Gulf War, the invasion plan was the easy bit. the lack of a peace plan resulted in 10 years of anarchy, which has just kicked off again in Iraq!

  13. If you fail to plan, you plan to fail.

    I have just sat the CIIs Retail Banking Exam RB1 and it brought back memeories when it said CAMPARI. We were taught Campari and Ice (not the drink). When balance with a computer, the system works, either in isolation is flawed.
    Computer says YES, human intervention Campari says NO
    Computer says NO, Campari says yes.
    Some decades we have a computer based system which results in a failure, other times we have a Campari based system which results in failure.
    Can we PLEASE have a combined approach

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