Have the lessons been learnt?
The Financial Services Authority (FAS) has highlighted how many mortgage lenders have still not learnt the lessons of the past years. Some specialist mortgage lenders have been so reckless that 30% to 60% of their borrowers are in arrears.
Representatives of the FSA made the claims at the annual conference of the Council of Mortgage Lenders (CML), which has claimed that the financial regulators plans for restricting mortgage lending are too strict.
Last month, the FSA launched a consultation on its plans for stiffer regulation of mortgage lending. Its key proposals were that so-called self-certification mortgages should be banned altogether, and that all mortgage applicants should face much tougher scrutiny of their ability to repay their home loans.
The FSA claims that some banks and building societies had lent recklessly in the past and this is now reflected in high arrears levels. However, the worst offenders are the specialist “non-banks” who had taken 20% of the mortgage market by 2008.
A large number of these non-banks had high-risk lending strategies that combined relatively large loans, with no checks on a borrower’s income, and borrowers who had poor credit records and who were also borrowing to pay off other debts.
Their expansion was pursued primarily into new, higher-risk consumer segments, with very limited and vulnerable means that had previously enjoyed only limited access to mortgages.
These lenders might be regulated in future, like banks and building societies, to make them more prudent.
The FSA has admitted that the suggested ban on self-certificated mortgages, where people do not have to prove how much they earn and how much they can afford to repay, was controversial in the mortgage industry.
However, they denied it would lock out about three million self-employed people from the mortgage market as they should be able to prove their incomes anyway if they were genuine.
The CML counter-claimed that the FSA was in danger of going too far. From their point of view, plenty of self-cert borrowers are complicated rather than dishonest, and it is simply wrong to see all self-cert as ‘liar loans’.
The FSA also argued that the boom in mortgage lending between 1997 and 2007 had not widened home ownership in the UK, as some claim. While prices rose by 200% in that time, the number of owner occupied homes rose by 9% to 14.7 million, but the number financed by a mortgage actually fell by 2% to 8.2 million.
