Professor Stephen Hawking recently warned: “The development of full artificial intelligence could spell the end of the human race.” Hold that thought…
A couple recently sought my advice on alleged misselling. In 2007, they had asked an adviser to consolidate their unsecured borrowings using the equity in their property. With £40,000 on personal loans and cards plus a £160,000 mortgage on a house worth £240,000 their repayments were unaffordable.
Moreover, they were making only the minimum payment on their cards and had themselves moved their existing mortgage onto an interest-only basis before they even consulted their adviser, so the overall debt was not reducing.
Their adviser consolidated the lot on an interest-only 10-year near-prime deal despite their patchy credit history. The interest on their new £200,000 mortgage was £1,115 per month, down from the £1800 per month cost of their previous borrowings. The new deal was also a tracker and a full 1 per cent cheaper. Job well done? Not half. With the drop in base rate their payments quickly fell to £392 per month.
Doing some detective work, I found their adviser had been highly experienced. She had investment as well as mortgage qualifications and, these days, holds an upper-middle management role in a bank. Her advice was clear and fair. All due warnings given.
But here is the problem: Mr client is now 56, Mrs client is 60. With just three years left on their deal their ability to remortgage is doubtful. Having seen advertisements by claim-chasing firms, however, they reckon they have been mis-sold.
In reality it is a classic case of greedy over-borrowing and over-spending ending in a search for somebody else to blame. So who is to blame? The clients themselves. They self-certified disposable income of £2,015 per month. If they had used the £1,400 per month saving resulting from the fall in base rate to repay capital they would now owe £100,000 less. Instead, they blew it.
However, I believe regulation is also to blame. Thanks to MMR, lenders are now frightened of misselling claims if they lend to the over-40s. Equity release and lifetime mortgages would be one possible lifeline to those on interest-only deals with no repayment plan but stultifying regulation and the compensation culture makes advising hazardous even with the best of expertise and intentions.
Use flexible drawdown maybe? Better not. Ever since the Chancellor effectively said “go ahead, it’s your money” the regulator has been doing everything possible to dissuade advisers and their clients from taking advantage of the new freedom on offer even when they have no intention of buying a Lamborghini.
All are symptoms of the regulator’s nanny-state mentality that all consumers are innocents with no capacity for rational thought and who, to be safe and happy, must be “protected” at all costs.
This brings me back to Stephen Hawking. Commenting on his remarks, Stuart Armstrong, a researcher in artificial intelligence said the danger was that “if an artificial intelligence worked out that what most people want is to be safe and happy, it might entomb us all in concrete bunkers on heroin drips”.
Perhaps the FCA should hire Stuart Armstrong before advisers and consumers find themselves entombed in neighbouring bunkers with nobody ever able to get a mortgage.
Neil Liversidge is managing director of West Riding Personal Financial Solutions