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Pointless exercise

Included in Gordon Brown’s article for last week’s Observer was the following comment: “We have got to get the balance right between serving homeowners better and encouraging responsibility in the housing market. We have also asked the Financial Services Authority to look at how in the future we should control new mortgages for more than 100 per cent of house value.”

The PM added: “We do want to see…loans to be made on prudent and careful terms, not just to people with large deposits, but to those on middle and modest incomes who wish to buy their home but who have not been able to save a huge deposit.”

Jumping on the bandwagon on The Politics Show on Sunday on BBC1, banking minister Lord Myners said banks were “foolish” to offer 100 per cent mortgages and added: “We have learned some very, very expensive lessons globally about reckless, feckless, witless lending by a small number of banks.”

As all the major UK banks were offering 100 per cent mortgages immediately before the credit crunch (Barclays only on a second-charge basis) our banking minister clearly thinks all the major UK banks were foolish. It might have been more relevant if he or his predecessor or his boss (Gordon Brown) had said as much when all those same banks were in the 100 per cent market rather than when none of them is.

I assume Myners’ comment about “reckless, feckless, witless lending by a small number of banks” refers to banks outside the UK, as all the major UK banks engaged in this “foolish” lending and hence are hardly a small number. However, on the assumption he is referring to US banks, I struggle to think which banks he is limiting his opprobrium to, as my impression was that the problem was caused by a rather large number of banks. If he is referring to any UK banks, it does rather beg the question as to why his Government did not ask the FSA, Gordon Brown’s brainchild, to rein in such “reckless, feckless, witless lending”.

Shadow Tory Treasury Chief Secretary Philip Hammond (along with many other politicians and commentators) also showed his ignorance of the mortgage market by saying: “It was his (Gordon Brown’s) regulatory system that…allowed 125 per cent mortgages from Northern Rock and HBOS.” As readers will know, neither Northern Rock nor HBOS ever offered 125 per cent mortgages, although both offered 95 per cent mortgages, together with a simultaneous advance of an unsecured loan of up to £30,000.

Going back to what Gordon Brown’s Observer article actually said, I think this is one of the relatively few occasions where the almost unanimous press criticism of what the PM said is unjustified. Most comments in the Sunday papers implied Brown was calling for a ban on 100 per cent mortgages, whereas he was only talking about controlling mortgages of over 100 per cent. As nearly all of these so-called 100 per cent- plus mortgages were actually 95 per cent mortgages plus an unsecured loan, the criticism should have been that this will be a rather pointless exercise.

Ray Boulger is senior technical manager at John Charcol

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