The Conservative election manifesto includes promises to abolish the tripartite system of regulation for a consumer protection agency, transfer the role of prudential supervision to the Bank of England and set up a free financial advice service, which the sector would pay for through a “£50m social responsibility levy”.
The Conservatives would make the £250,000 stamp duty threshold for first-time buyers permanent and push ahead with a levy on banks regardless of whether there is support from the international community.
But perhaps the most concerning thing for the mortgage market was the Tories’ claim that they would lessen the UK’s dependence on wholesale funding, adding to the worries of the funding gap facing the industry.
Cicero Consulting director Iain Anderson says the announcement could add to the struggle that lenders face in trying to secure wholesale funding.
He says: “They really specifically ruled out stimulating wholesale funding. That is an interesting place to be, given the fact that the lending community is starting to think about ways to increase capacity.
“The fact that the Conservatives have ruled out public policy measures to increase wholesale funding means there is an uphill battle for the lending industry to make that case if the Conservatives win.”
Association of Mortgage Intermediaries director Robert Sinclair warns that a future Tory Government should not interfere with the wholesale structure that is in place.
He says: “I can understand that they do not want to do any more but they tere have to be careful to sustain what is out there.”
The document says the Budget rise in the stamp duty threshold for first-time buyers to £250,000 for two years would be made permanent.
A Council of Mortgage Lenders spokesman says: “It will be helpful to first-time buyers over a longer period but it does not address the key barrier for first-time buyers at the moment, which is the size of the deposit that they have to put down on a property.”
’It is interesting there is a willingness to stimulate the housing market through one policy lever, stamp duty, and not have a stimulant through another policy lever – wholesale funding’
Building Societies Association head of mortgage policy Paul Broadhead says: “We believe the stamp duty regime is in need of long overdue reform. The nature of the tax means buyers pay significantly more tax when they reach the thresholds, and this means there is a significant grouping of properties priced immediately below each thresholds.”
Anderson is intrigued by the conflict in the Tories’ views on stimulating the mortgage market.
He says: “It is interesting there is a willingness to stimulate the housing market through one policy lever, stamp duty, and not have a stimulant through another policy lever – wholesale funding.”
On the Tory initiative to scrap the tripartite system of regulation, Anderson is concerned the move could be a case of rebranding the FSA.
He says: “If it is purely about moving people around and putting a new brand on the FSA building, then that is not a good idea. It cannot just be cosmetic.”
However, Mac Consulting chief executive Mark Chilton believes the Tories are right to replace the FSA. He says: “It is a bold move and the right thing to do. Clearly, in what we have seen in the last two years, regulation and monitoring has fallen between too many stools. The FSA is the one who has underperformed.”
But Chilton argues that pressing on with a levy on the banks without international consensus would be wrong.
He says: “Britain is heavily reliant on financial services. Even if one other major power does not adopt the levy, then you are going to see the shift of banking away from the UK, and that would be damaging for the economy.”
Shadow Chancellor George Osborne announced plans to introduce a free financial advice service under a Tory Government in the economic manifesto. The £50m scheme would be paid for by a levy on the financial services sector.
Association of Mortgage Intermediaries director Robert Sinclair says: “Anything that moves the world forward so more people want to take advice is a good thing but we believe that is best served by people who are experts in that arena and that intermediary world.”
BSA director general Adrian Coles is concerned over the eventual cost to the industry.
He says: “We have concerns about the funding mechanism for such a service. Building society margins are under huge pressure. There will be an onus on the new provider of financial advice to operate in an extremely cost-effective manner to minimise further burdens on those institutions and their customers.”