The Council of Mortgage Lenders Report Criticises FSA over Regulation

The UK government may well support the idea of more home ownership and the importance of first time buyers having the opportunity to become home owners, but their good intentions are likely to mean little with new FSA regulations to contend with. The Council of Mortgage Lenders has compiled a report which criticises the too intrusive regulation which the FSA has adopted and concludes that “the unintended consequence of mortgage regulation is likely to stifle innovation and opportunity.”

The UK is entering an age of austerity, and return to thrift and savings, to compensate for the lax lending practices which culminated in 2007 representing the peak of mortgage lending folly. Irresponsible borrowers were serviced by irresponsible lenders, with 100% mortgages issued, and loan amounts exceeding previous salary multiplication standards. When the inevitable bubble burst yet again, regulators moved in to put a stop to such lax practices.

The rise in interest only mortgages was irresponsible after the previous endowment fiasco, particularly as new interest only mortgages did not always require a repayment vehicle in place to pay the mortgage off at the end of its term. The Council predicts that interest only mortgages will disappear completely as lenders will be increasingly expected to regulate borrower’s repayment vehicles; not exactly a voluntary remit.

The Council of Mortgage Lenders considers that regulation has gone too far, shrinking the mortgage market to a competitive field of primarily six lenders, which will in turn trap people who wish to move into their existing mortgages. It believes the primary aim is to shrink mortgage debt, and mortgage lending will become severely rationed with financing only available at higher costs.

One of the consequences will be to shut out first time buyers unless they are bankrolled by ‘the bank of Mum and Dad.’ The size of deposits has now swung from nothing required to an average 30% of the property price, with first time buyers also paying higher rates to reflect their risk. Effectively most will be excluded from home ownership until their late 30’s, needing time to save the necessary deposits.

The main criticism which the Council of Mortgage lenders raise is that the efforts of an over intrusive risk averse regulator will discourage lenders from offering finance if they are not deemed capable of managing their own risk portfolios. It considers that the FSA “has not accepted that the risk of irresponsible lending has diminished.” It believes that the housing market will be unable to meet anyone’s aspirations if it becomes too risk averse, with both current owners and potential owners stifled by over regulation.

The report is intended to stimulate discussion on the subject, but is only an intermediary report which awaits the EU rulings on new regulations which may be introduced. Clearly though, the picture which the report paints is one in which house ownership as the UK has known it for the last 30 years, is now threatened by a too restrictive backlash to the lending mistakes of 2007.

Source: The Council of mortgage lenders.