For anyone who knows how much the financial services sector dislikes regulation, there has been a strange phenomenon in the past few months – companies, lifelong enemies of the regulators, asking to be regulated.
Stranger still, the people who would do the regulating are not only denying them their dearest wish, they are making them beg.
There are at least three recent examples of this strange regulatory sado-masochism. First, there was the weird sight of the Council of Mortgage Lenders pleading with the Government to regulate the sale of mortgages. It was joined by most mortgage brokers, surveyors, financial advisers and consumer groups. Almost the only ones not pressing for it were the regulator itself and the Treasury.
Eventually, the Treasury financial secretary, Ruth Kelly, succumbed to the pressure and agreed to regulate the sale of mortgages.
But now there are at least two more areas where the same thing is happening. First, home-reversion plans. In terms of the advice required and the duty of care to the customer, the case for regulation is strong. Many of these customers will be elderly and unacquainted with the world of finance. This has all been painfully illustrated in the past with the home-income plans debacle. Sure, it may now be a requirement that elderly people are not at risk of being kicked out of their homes but they, and their families, could still lose heavily if they are sold an unsuitable plan.
In terms of the risks entailed and the advice required, home-reversion plans require attention to both the stockmarket and the annuity market – you have to not only think about the likely returns on the stockmarket, but also about when you are likely to die.
It is all too easy to imagine disreputable firms once again ruining what could, if run properly, be a useful financial service to improve the lives of the elderly.
Aware of that, most of the mortgage industry has avoided joining the market, opting instead to lobby for it to be regulated first. Mervyn Kohler of Help the Aged has urged the Treasury not to wait until the horse has bolted before shutting this particular stable door, but so far the Treasury has resisted.
One more example. The Office of Fair Trading (that other regulator) recently completed an inquiry of two-and-a-half years into estate agents. Its conclusion was that serious abuses were indeed a problem in the sector, such as failing to declare a conflict of interest that might affect your purchase or sale, or failing to pass on offers to the vendor – a fundamental part of an estate agent's job. Another abuse was the tendency to imply that homebuyers putting in offers would have a better chance of success if they used the in-house broker at the estate agent to get their mortgage.
To many in the industry, the conclusion drawn by the OFT was just lame. Customers, we were told, should shop around more to get agents to reduce their high fees. And, um, the information given to customers should be more transparent. Meanwhile, we will wait another two years and see how voluntary self-regulation goes.
Now most reputable agents are desperate for the sector to be regulated. They know there are unscrupulous agents. They resent the fact that when they set high standards, others can pinch business by cutting corners and bending rules.
Hardly any company or group in the estate agents' marketplace welcomed the OFT's report. They were all disappointed that they were not going to be regulated. The Royal Institute of Chartered Surveyors was blunt – the OFT, it said, had bottled out.
There is one area of mortgages where very few calls are being made to regulate but which, potentially, has the makings of a huge financial mess – equity withdrawal. By that, I mean not only equity-release plans for the elderly, but the whole trend to use the equity in your home as a source of easy money.
I recently took a straw poll of 100 staff at the BBC to ask who had withdrawn equity – either by taking out an additional loan, re-mortgaging or drawing out cash when they move. More than half of them had already done it and a worrying amount of that extra borrowing was not for kitchens, roofs or extensions.
At best, it was for debt consolidation (not always the best advice, even though the monthly payments seem to come down as, in an age of low inflation, that debt will stay there, and remain significant, for much longer). At worst, people were financing trips around the world, flash cars and weddings. With interest rates so low, the extra money on the monthly payments seems like nothing. For an extra £100 on your monthly payment, you might get a lump sum of more than £10,000 and most feel they are safe if there is still a big gap between the amount they have borrowed and the value of their homes.
Apart from the obvious risk of a collapse or a long slump in house prices, no one has identified the risks of this runaway phenomenon. But if there is one lesson to be learned from financial scandals – whether Equitable Life, endowment mortgages, or split-cap investment trusts – it is “if it looks to good to be true, it probably is”. Well, equity withdrawal looks too good to be true.
Yet much of this lending, especially for debt consolidation, is in the form of a second charge and, as such, is not and will not be regulated, except by the singularly ineffective Consumer Credit Act. Just watch the ads on TV and ask yourself whether this is the one area of mortgages that should not be regulated? This stable door is wide open.
Andrew Verity is a personal finance reporter at the BBC