Outlining its proposals to crack down on ‘irresponsible’ home lending, FSA chief exec Hector Sants suggests that affordability tests – including questions on spending on alcohol, tobacco and clothing – should be part of the mortgage approval process in future. This would help, says Sants ‘to ensure that lending decisions are based on a consumer’s free disposable income.’
Now on the one hand this seems fair enough. We have all seen over the last 18 months or so what can happen when a lot of money is lent to people who can’t really afford to pay it back. Surely taking greater pains to make sure that customers do have the means to do so is just good business as far as lenders are concerned?
But on the other, is what you and I choose to spend our hard earned dosh on any business of anybody else’s, bank or otherwise, provided that we don’t break the law while we are at it? A lot of people would answer a very firm ‘no’ to that question.
And how much irresposible lending was there in the UK anyway? Not that much, to judge but the way that the vast majority of borrowers have been paying down their mortgages at record rates even in the midst or recession. We can't help thinking that it's the wholesale securitised debt market that really needs shaking up, but that's another story.
The FSA proposals also include a possible ban on self-certified mortgages – so called ‘liar’s loans’ – and the desire that it should also regulate buy to let mortgages. which do not currently fall under its purview. The latter seems like a sensible move to us, the former less so. An outright ban on self-certified loans would certainly reduce the number of mortgage approvals, but largely by making it very hard for anyone self-employed to get a mortgage at all. Surely it’s unreasonable to brand everyone who works for themselves a loan-defaulter in the making? It certainly wouldn’t do much for the dynamic, entrepreneurial UK economy that the Government likes to make so much of.
The whole shebang highlights very precisely the difficult position the regulator finds itself in, now that the recession seems to have done its worst. Everyone can agree expansively that financial restraint, control and moderation are needed in greater abundance than they were before. But when it comes to exactly what regulatory or legislative shape that moderation should take, it’s a very different matter. The arguments can quickly come to look self-serving and disingenuous on both sides.
And in finance, the stakes could hardly be higher, as the economy is so dependant in the sector. Too much regulation, or too inept an approach, and the UK’s competitive advantage is at stake.
Striking the right balance between what society deems is acceptable and what the financial industry would like to get away with is one of the most critical challenges we face today. And this is where things start to go a bit pear-shaped - the banking industry is full of very clever, driven people who are expert at marshalling the available information in order to make sure they continue to get their own way. Here at MT, we’re not so sure that the same can be said of the FSA, which may very well not even exist after the next election.
In today's bulletin:
Cut down on fags, booze and shoes if you want a mortgage, says FSA's Sants
TNT offers to 'help out' in postal strike
BAA facing double dose of turbulence
Habitat up for sale?
Nomura's dress-code shows up cultural divide