Whenever I speak to the regulator I always make them aware of the law of unintended consequences.
The domino effect of ill-thought out regulation which takes one step forward then two back and consigns thousands of advisers to a place where they cannot provide or receive advice in a profitable or balanced manner.
More pertinently, from the regulator’s stance, the consequences for consumers are such that their ability to achieve reasonable outcomes is thwarted.
The latest example is the Mortgage Market Review which is founded on the notion that inappropriate lending conspired to create the credit crunch – whereas any rational observer will confirm that the catalyst was actually nonsensical US government policies allied to greed.
The MMR places added responsibility on the lenders and leaves each lender to interpret the requirements and design its own systems and processes. As often happens with networks, the fear of regulatory opprobrium is such that the rules become gold-plated and the processes develop a rigidity that provides little room for sensible judgement.
Does the FCA want a reduction in lending? Does it intend that lenders batten down the hatches and reduce the borrowing prospects of millions of consumers? Previously the FCA has advised that such matters are a ‘commercial judgement’ but if they are in favour of commercial judgement then they should leave the lenders to their own devices and not seek to design lending processes.
The Woolwich sensibly takes loans and credit card balances into account when assessing affordability but it then veers into murky waters when they also make a reduction where pension contributions are being made. Unlike loans, pension contributions are voluntary and can be stopped or reduced at any time and in an era where not enough is being saved it sends a peculiarly mixed message to borrowers. I wonder if I will be the only adviser telling his clients to cease making contributions in the months prior to a mortgage application?
Halifax does not follow Woolwich’s lead but is nonetheless guilty of irrationality when existing borrowers wish to switch products. Even though no additional borrowing is involved they can elect to request proof of current income.
If the income is deemed insufficient the borrowers will be denied his chosen cheap interest rate product and will be forced onto the variable base. The Halifax logic revolves around risk but it seems to have escaped their notice that being placed on the dearer base rate then makes the borrowers higher risk.
Another created problem involves those house movers and remortgagors who aim to consolidate debt. Many lenders will ignore the intention to repay the debt and will calculate affordability on the assumption that the credit will remain outstanding.
Multiple applicants and guarantor mortgages are also facing the chop although the rationale for this remains a secret that lenders protect with their lives.
I realise that a number of readers will take an opposing view – after all there are always three opinions for every rational thought – yet the question I have for the regulator and also the Government is why is it that consumers can be trusted with their pension funds yet treated like idiots when it comes to repaying their mortgage?
The answer, surely, has nothing to do with next year’s election, has it?
Alan Lakey is partner at Highclere Financial Services