Housebuilders and lenders criticise FSA as likely to create 'mortgage famine'

Published 05th Nov 2010

Redrow founder says regulators are going too far as CML claims 2.2m homeowners would not get mortgages under FSA reforms


Lenders and housebuilders stepped up their opposition to new lending rules being proposed by the City watchdog today, accusing the regulators of paving the way for a "mortgage famine".

After an explosion in credit in the run-up to the financial crisis, the Financial Services Authority (FSA) is adamant that a clampdown is needed to protect the 46% of UK households that have no money left each month after paying their mortgages and other bills.

It has begun consulting on ways to toughen the criteria used by lenders before granting mortgages but today Steve Morgan, the outspoken founder and largest shareholder of the housebuilding group Redrow, launched a blistering attack on "stifling" mortgage regulations and media "scaremongering" over the health of the housing market.

Addressing Redrow's annual shareholder meeting not only as chairman but as owner of 30% of the company, Morgan said: "Our message to the government is simple: the regulators are going too far and the medicine risks killing the patient."

His outburst came as the Council of Mortgage Lenders (CML) urged the public to write to the FSA, local MPs and ministers to protest against the "flawed and impractical" proposals.

After warning last month that nearly four million Britons would have been denied mortgages if the FSA's rules had been in place before the crisis struck, the CML produced two pieces of research showing 2.2 million existing homeowners would be unable to get mortgages if the rules were introduced and showing that extra checks being required could raise the price of a loan by £21.50 for every mortgage taken out, rising to £35 for those whose income needed further investigation.

Michael Coogan, CML director general, wants the FSA to reconsult on a new draft and say it is going to do so before the current consultation ends on 16 November.

"The FSA, like the industry, needs to have a clear steer from the coalition government about what type of regulatory structure is needed to support housing policy and deliver systemic stability in the mortgage market in the 21st century …Before we go much further … on the restructuring of regulatory bodies, we need ministers to be clear about their intentions. Whether they want regulation to protect the vulnerable minority, or give an opportunity to the majority to achieve their aspirations," Coogan said.

The Redrow boss fears that first-time buyers are most affected and blames a "worsening mortgage famine" for pushing the average age of an unassisted first-time buyer up to 37 as thousands of creditworthy would-be buyers were refused loans.

"For generations 95% mortgages have been the norm ... Yet the current generation of first time buyers are being denied the opportunity that their parents and grandparents took for granted, simply because they are unable to secure an affordable mortgage with a modest deposit," he said.

Robin Hardy, an analyst at KBC Peel Hunt, described Morgan's comments as "a rant against planning policy and mortgage lending". He brushed the Redrow chairman's remarks aside, suggesting they were "wasted energy as these [challenges] are unlikely to change in the near term".

Morgan's speech came hours after the mortgage lender Halifax reported a 1.8% rise in house prices for October, in part bouncing back from the shock 3.7% fall posted for September – a decline that triggered fevered speculation that house prices were about to plummet.

Sharply fluctuating monthly figures highlight the volatility of snapshot data and Halifax suggested a better indicator was its comparative figure for the three months to October, which showed a rise of 1.2% in house prices. That rise slowed from a 2.6% increase for the three months to September.Morgan, who also owns Wolverhampton Wanderers football club, also attacked media "scaremongering", insisting underlying demand for homes remained strong, with "tens, if not hundreds of thousands of people wanting to buy their first home".

Suggesting policy makers and media commentators were willfully ignoring the plight of young, aspirational workers, Morgan added: "The current generation of first-time buyers are being denied the opportunity that their parents and grandparents took for granted, simply because they are unable to secure an affordable mortgage with a modest deposit.

"Most people are left with little choice but to go into the private rented sector or live with their parents. Every week we are forced to turn away potential purchasers simply because they do not have a deposit of 25% or more; people with excellent jobs who under normal circumstances would easily qualify for a mortgage," he said, warning that the situation could worsen if the FSA implemented its proposals. The proposals are for a series of new rules on responsible lending, many of which could make it harder for first-time buyers to secure home loans.

Morgan's concerns were echoed in a report published today by the Council of Mortgage Lenders, which is also highly critical of the FSA's plans. The report claims the regulator's proposals may have seen 2.2m existing home-owners unable to get mortgages.

The FSA was unrepentant. "While many people are currently benefiting from historically low interest rates, market contraction has already impacted over two million borrowers and our evidence has found that almost half of UK households (46%) have had little or no money left after their mortgage and other bills were deducted from their income," it said.

Even a modest increase in interest rates could lead to a sharp rise in mortgage arrears and repossessions, it said. "Much of what we are proposing is consistent with how lenders themselves have already tightened up their procedures following the recent downturn. No doubt this is why our proposals have been characterised by a number of firms as simply marking a return to 'sensible underwriting' and common sense."

Source: ' Guardian '

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