At last, we can stop speculating about what may come out of the mortgage market review, and get on with the business of mortgage lending. Much has been carried over from previous consultation papers and the FSA has gone out of its way to incorporate industry feedback. There is an argument that the industry doesn’t need regulation, but based on some of the practices that crept into the markets in the days before the credit crunch, these sorts of rules were inevitable. The FSA has not ruled out interest only loans, or loans to the self-employed, or even to those with impaired credit; but it is asking for lenders to be responsible, to ask the right questions and to make sure the debt can be serviced and repaid, which is not unreasonable. I’m pleased that this has now been put to bed. I’m sure the FSA are too.
Tony Ward is chief executive of Home Funding.
Until recently there was no specific financial regulation applying to mortgages. Since taking over regulatory responsibility, the FSA has done what it does best: it has produced reviews running to hundreds of pages; written voluminous rules; and then written further rules providing for exceptions to those rules. A mortgage is a contract between a bank and borrower. Both have an incentive to ensure that the debt is repaid. At times, over-exuberance and bad behaviour may be problems, but they cannot be solved with bureaucratic regulation. Britain’s unregulated mortgage market worked well. Costs were low and defaults – even in the early 1990s – have been limited. Mortgage regulation is likely to lead to more expense and irrelevant paperwork for customers. Ironically customers may end up taking out expensive, unsecured loans instead of mortgages, which would be a disaster.
Philip Booth is director at the Institute of Economic Affairs.