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Neil Liversidge: Nanny-state regulator to blame for mortgage woes

The toxic claims culture is preventing consumers from finding the best mortgage deals

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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 

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Excellent article, Neil, which highlights how politically correct regulation is stifling this industry and putting sensible, sound advice out of reach of Mr & Mrs Average, who are now deemed to be totally incapable of making a decision based on facts, for which they are ultimately responsible.

    This will soon make PII premiums unaffordable for SMEs and so access to good advice will be even harder to attain, unless the client is prepared to pay through the nose.

    So well done the FCA, yet another excellent achievement!

  2. Agree completely and if MMR had been in place at the time these customers wouldn’t have been able to remortgage in this fashion so they would have been better off how ? Throwing the baby out with the bath water is the phrase that springs to mind.

  3. Totally agree but here’s the problem. Most of the population behave like stroppy teenagers. They demand that they are old enough to make their own decisions but as soon as they find themselves in trouble they’re on the phone to mum and dad asking them to sort it out .

    The media is as bad. A few weeks ago one of the Sunday papers had a big piece complaining that banks were asking for further security checks if depositors wanted to make a large cash withdrawal. Yet you can imagine their outrage if a reader complained that the bank had paid out a large cash sum to an imposter

  4. Strange how financial services has developed across the whole spectrum. Borrowing the way these clients did would always have resulted in the chaos they now find themselves in. Of course the experienced adviser should have pointed out there may be a point in the future where the regulator would insist on all sorts of affordability calculations and they probably wouldn’t get a loan in the future. I’m talking about the adviser who had her crystal ball out here of course….. There are also those that claimed their PPI insurance was miss-sold and obtained compensation, then there was all that compensation paid out for miss-sold endowments. Was any of this used to reduce their debt? Answers on a postcard please. Our past government and regulators have created a culture where it’s anybody’s fault but their own so why wouldn’t they try it on again. Its worked for others so why wouldn’t it work for them? If this attitude to personal responsibility continues no one will want to enter this industry and those that are left will throw in the towel.

  5. Now imagine the situation in reverse. The borrower is locked on SVR cannot switch and is loosing the same amount every month through idiotic affordability tests the lender hides behind FCA ruling and extorts the borrower and this is on 58% LTV all payments up to date and the highest credit rating attainable . This is the most common scenario out there at the moment.

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