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Lenders will be weakened

If a lender offers a special deal such as an interest rate of 2 per cent below base rate for the first two years, it hardly seems unreasonable to stipulate some sort of disincentive against the borrower switching to another lender the moment the special terms come to an end.

If the lender does not impose a charge for early redemption within a certain period beyond a special deal, then the contract will have cost them money and that, in the long term, will surely weaken the lender’s ability to offer their customers special terms in the future. How is that supposed to be in the best interests of consumers?

If the FSA wins this particular battle in what has become a bitter ongoing war between it and those it regulates, what is to stop it dictating the rates of interest and charges levied by lenders on all their mortgages in the name of consumer interest? What the FSA seems to want to impose is products that may initially be good for the consumer but will ultimately damage providers and eventually the whole marketplace.

Lenders, like any other commercial enterprise, are in business to make money. To do that, their products have to strike a balance between competitiveness and profitability. That is the simple law of a free market but, as we now know, a free market is something towards which the FSA seems to have a most peculiar attitude. As for profitability, the FSA seems to be downright hostile towards this. Huge remuneration packages for its own staff are different, however.

A lender that goes bust or whose service standards or financial strength are fatally compromised as a result of it being forced to market products that lose it money is of little use to any of its customers thereafter, let alone its staff or the reputation of the industry.

For proof of what happens when providers are browbeaten into marketing money-losing products, we have only to observe the effects of stakeholder pensions, against which the life companies should have had the spine to stand firm but sadly did not. No one is suggesting that lenders should be afforded a free hand to impose unreasonable terms for entrusting their depositors’ money to those who need to borrow some of it to buy a home.

I am all for clear and simple explanations of both the entry and exit charges of any product so that customers know where they stand right from the outset and can reach an informed decision as to which mortgage is right for them. But there are reasonable limits, except, it seems, to how much of the industry’s money the FSA is allowed to spend on its own existence.

Julian Stevens

WDS, Bristol

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