Confidence plays a large part in all aspects of the delivery of financial products. Consumers need to be satisfied their advisers and product suppliers are financially secure, while the regulator must ensure all of the stakeholders know that proper steps are being taken to control firms and deliver a strong and sustainable market.
Therefore, it is somewhat disturbing to read some of the concerns expressed by the Council of Mortgage Lenders regarding the risks contained within the FSA’s proposals in CP10/16.
For its part, the regulator has been quick to respond to these criticisms, supporting its reasoning with data collected over the past five years of regulation. But it must be remembered that all of that is historic and current times are very different.
We are facing a whole raft of unprecedented issues and the regulation we now need has to be responsive to new situations, recognising that the primary purpose of home finance is to enable individuals to have access to decent housing at a price they can afford, regardless of where they choose to live or if they choose to buy or rent.
One of the biggest challenges that will face lenders in the coming months is how they deal with the need to refinance some £750bn of lending.
That number is half of UK GDP – but it is not just a UK problem, it is global. The traditional routes of securitisation are likely to remain limited, meaning UK institutions will not find it easy to tap world markets.
The problem would be eased if it were possible to attract significant retail deposits. But while there has been some evidence that consumers are being more circumspect about their spending, low interest rates do not do much to encourage a savings habit that has been in decline for so many years.
Quantitative easing activity by the Bank of England cannot be ignored but it is generally accepted that the impact has not been as obvious as might have been expected.
There is no doubt that there has been a positive effect on stockmarket performance. Higher share prices have enabled large companies to reduce their reliance on banks borrowing and are beginning to reduce pension deficits. But it must not be forgotten that QE itself is only a temporary condition that will have to be unwound in the fullness of time.
All of these concerns are issues that need to be addressed within the next two years and it is important that we have some very steady hands on the tiller.
It is unfortunate that during this time the FSA will be going through a period of structural transition. It is vital that politicians and regulators alike recognise the need for a strong and sustainable market – something that is vital if, as a nation, we are going to fulfil the growing demand for housing that meets minimum social needs.
Confidence and certainty are the two elements that are essential to nurturing the market conditions that are required.
Richard Fox is chief executive of the Chartered Insurance Institute’s Society of Mortgage Professionals