When the FSA embarked on its mortgage market review voyage, I attended a London roadshow which, it was suggested, would provide a conduit between the regulatory theory and practitioner reality.
The event started with a slideshow presentation where the FSA speaker tried to justify the ending of mortgage self-certification. He projected a graph that purported to highlight the relative arrears of self-cert and standard loans.
Only when challenged on the astounding differences was it discovered the graph was actually comparing main-stream loans with non-conforming, a substantial distinction that he either chose to ignore or was ignorant of.
From that moment, I knew the dead hand of regulation would prove both meddle-some and intrusive and that this signalled a watershed in the UK mortgage world.
Fast-forward three years and behold a mortgage industry where the application of logic is dismissed as a black science and the insistence on rigidity and unthinking obedience to Draconian rules has swiftly become the norm.
The MMR has forced lenders to introduce processes that satisfy the neuroses of the regulator at the expense of sound lending practice – another unintended consequence, perhaps. Better to postpone the licensing of mortgage advisers and focus attention on lenders, with predictably dismal outcomes.
Why does the regulator understand risk better than a lender? Why is it necessary to dictate commercial decision-making where the consequence is a battening down of the lending hatches and a collective reluctance to use experience and common sense? Many regulatory incumbents were failures in their previous commercial lives, yet their theorising has a dramatically negative impact on consumers and advisers.
Back in the early 1980s, when I first involved myself in arranging mortgages mortgage, the lending decisions were the province of branch managers who worked within a defined mandate and were encouraged to apply experience and discretion. Such notions are now considered antiquated in a world where automated process prevails over reason.
Consider the lack of joined-up thinking at Santander, where a sole trader netting £50,000 will be allowed to borrow up to £250,000, yet, if he forms a tax-efficient limited company with an identical profit, his loan will be dependent on the salary taken.
The recent blows dealt to interest-only loans also serve as a good example. Halifax now insists that only a pension pot valued at £1m can provide the necessary security, regardless of the mortgage size. That pretty much disqualifies all my clients and I reckon over 95 per cent of borrowers. Well done.
Look also at the reduction of the maximum age allowed for borrowers. Lenders are frequently restricting loans to 65 yet we are living longer, retiring later and, in many instances, have little choice due to the advancement of the state pension age.
Perhaps it is as Martin Wheatley suggested, that consumers are too irrational, too bereft of reason to be allowed to make their own decisions regarding repay-ment of their own mortgage. Perhaps they should not be allowed to own houses. Maybe they should only be allowed out under the supervision of a trusted individual, someone with a history of making sensible and balanced decisions. A regulator, maybe.
What we are seeing with the MMR, the RDR and with society as a whole is the wholesale removal of choice. This inc-ludes limiting options and suppression of free will in what they would have us believe is all in our best interests.
Alan Lakey is partner at Highclere Financial Services