October 7th, 2010 by andrew
The Council of Mortgage Lenders (CML) are not too impressed with the conclusions with the FSA’s Mortgage Market Review (MMR) released this week. The CML state that 3.8m mortgages would not have been lent since 2005 if the FSA current mortgage proposals had already been implemented.
The CML found that 51% of “good loans”, about 3.8m that have never suffered payment problems, would potentially not have been made to home buyers, while an estimated 151,000 arrears cases and 38,000 repossession cases might not have occurred. They believe the number or arrears and repossessions is relatively small in comparison to the impact on such a large humber of “good” borrowers.
CML also said its analysis indicated that the future effect of the MMR could be far higher than the FSA’s own impact assessment has shown.
CML’s analysis indicated that First-time buyers would have been particularly badly hit, with 95% or 730,000 first-time buyers between Q2 2005 and Q1 2009, who would have been denied a mortgage under the proposals, never experiencing payment difficulties.
Impaired credit borrowers would also have been hit hard, with 80% denied a mortgage of which 20% were in payment difficulties in 2009. The CML said this again showed that the number of borrowers prevented from accessing mortgages despite not suffering payment problems far outweighed the number “protected” from difficulty.
In addition, CML analysis indicated that the FSA’s proposals would not prevent boom and bust – one of the very events it was trying to eradicate or at least dampen. It suggests that the new proposals would have only impacted the market in the way it was designed in 2008 – when lending was already tight and the horse had already bolted.
The CML wanted to make clear it was not against regulatory change and agreed with many of the principles proposed, but they said: “Our concern is to make sure that the rules which are finally implemented are clear in their intended impact, practical in their implementation, and fair in their overall effect on consumers, intermediaries and lenders alike.
Like the FSA, we want a market that is sustainable for all market participants, and a flexible market that works better for consumers. This analysis suggests that there is a very big question over whether that is the environment the current proposals would create. Indeed, we think it shows that neither of the stated outcomes will be effectively achieved.”
The FSA statement said: “Our proposals are designed to address the major failures that have occurred in the mortgage market and we are actively consulting with all stakeholders to ensure we get the right solution.
Our evidence shows that 16% of borrowers are already financially overstretched and they are facing problems now as a result of their lenders’ practices in the past, not the MMR. But for now borrowers are also benefiting from historically low interest rates and house price inflation, which cannot go on forever.
This is why it is imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions. We will continue to work with industry and consumers to establish a strong mortgage market where those who can afford mortgages are able to get them. It is in the interests of all that we get this right: both lenders and borrowers suffer from irresponsible lending.”