Bob Hunt is Chief Executive of Paradigm Mortgage Services
The Council of Mortgage Lenders’ Mortgage Industry Conference & Exhibition, or MICE for short, certainly caused more than a squeak when it took place recently. With some heavyweight presentations the content was always likely to be scrutinised intently, particularly when you have the Financial Services Authority offering its pre-Mortgage Market Review publication mood music. When those actual MMR proposals will be published was an altogether different question with no apparent answer. However the regulator certainly offered up some morsels for what it might contain.
Interest-only it would seem is going to be put back in its rightful place through the MMR. Again this provided a wonderful opportunity for a wide interpretation of Sheila Nicoll’s (head of conduct policy at the FSA) words and what they actually meant. Certainly, lender representatives seemed less than enamored with the idea of a regulator regulating interest-only to within an inch of its life, given there are still many borrowers who this option is completely suitable for. Again let us hope that the word “suitability” is not lost on the regulator and that it allows the mortgage profession to make up its own mind on who is and who is not suitable for the interest-only option.
The future of buy-to-let within the regulatory environment was another hot topic that took centre stage with the suggestion that the FSA were, in some way, preparing to take it under its wing. Many within the sector have already suggested that the European Mortgage Directive will force the hand of the regulator anyway when it comes to buy-to-let and to hear it call regulation “logical” may suggest to some that it is anticipating the change sooner rather than later.
It is an interesting choice of words given that many who are specialist buy-to-let lenders have expressed rather vehemently that that they see no ‘logic’ in regulating buy-to-let. Indeed, I believe both the CML and Intermediary Mortgage Lenders Association have also stressed the same position publicly. The big question about buy-to-let regulation is whether it actually provides any extra protection to the borrower given that the risk is not a product risk but actually the risk of whether to purchase an investment property in the first place. The risk is in whether the property can be let, whether it is in the right area, whether it can make the necessary rental income, etc. These risks have nothing to do with the products themselves and regulating them seems to be an odd way to attempt to lower those risks.
However one suspects that this is not within the UK’s control – European regulation is the great driving force at present, and it is likely to be the Mortgage Directive that shapes the future of the buy-to-let market here. Clearly this will be an issue for the coalition government though as it has wholeheartedly set out its housing stall by placing a significant amount of pressure on the private rental sector to fill the housing gap. It needs more private rental property to be made available and therefore it needs either existing landlords to purchase more property or new landlords to jump into the water. There is evidence that both are opting to do this, however how regulation of the sector might affect their appetite and also the appetite of lenders who wish to enter this market are questions that remain to be answered.
Finally, on a wider economic scale I was interested in the speech of Charles Bean, deputy governor for monetary policy at the Bank of England, who gave an interesting insight into why the Bank had restarted its quantitative easing programme and what it hoped to achieve. I admit to being rather cynical with regards to what the first batch of QE did or didn’t do. The idea that the banks would be using QE to lend significantly more to small/medium-sized businesses and individuals never seemed to actually materialise. Instead it sat on the balance sheets in order to provide those with a more positive glow. Now QE2 has started, what will be different?
QE is designed, Bean said, to depress a range of longer-term yields and raise asset prices, which essentially boosts demand. It’s done through buying government debt and, as mentioned above, the success of that policy is moot to say the least. Will it have the desired effect this time? Again the jury is out however one thing is certain, we need sizeable growth in the economy over a significant period to help us move much further away from the recessionary cliff edge that we still find ourselves hovering near.
All in all MICE certainly seemed to deliver in terms of talking points; with Mortgage Business Expo just over a week away, we will have another chance to hear those at the heart of our sector discussing its future. Certainly, we will also be one week closer to the publication of the MMR proposals – whenever that might be.
