MMR Analysis: pride before a fall
Hubris is the Greek sin of pride before a fall. I’m no Delphic oracle but it strikes me that everyone is terribly pleased with themselves about the Mortgage Market Review consultation paper published today.
I am less sure, for two reasons.
One, if you want someone to accept tighter rules that will hinder their business and harm their growth prospects how would you go about getting them to do that with good grace?
Tell them you'll take a mile, listen and then take an inch.
It is a very simple rule of public relations. Whether the FSA had this in mind as far back as last summer is anyone's guess but it is worth considering.
Two, if we have learned anything at all in the past five years it should be that resting on one's laurels is never a good idea.
Despite all the assurances given by Gordon Brown in the run up to the most spectacular recession since the World Wars bust inevitably followed boom.
I'm not suggesting we throw the FSA's proposals back in their face. Not at all. Much of what they propose is, as they claim, "common sense".
Rather I would urge a moment of reflection.
The FSA's goal is to achieve a sustainable and stable mortgage and housing market. It is an admirable objective and one shared by our government. Stable growth and stable house prices are economic nirvana.
But it bears much in common with an economy that enjoys stable growth and doesn't suffer the ills of bubble and break-down. Whether and at what cost it can be achieved remains to be seen.
The FSA has "shown" it has listened to the impassioned pleas of the industry who railed against regulation that would severely restrict the number of people with access to home finance.
But it has indeed given an inch, not a mile. And pleased as we may be with today's paper it would be a mistake to think it means the industry has got what it wanted.
Among a multitude of proposals to help shape a brave new mortgage market there are some that should be looked at more closely.
Interest-only mortgages will stay but forcing lenders to accept only borrowers who can demonstrate they can afford to repay effectively means this will be a niche product in future. Other than for high net worth individuals, who will potentially be given a carte blanche on home finance, this product is pretty much a thing of the past.
By the FSA's own admission this will restrict access to homeownership for many people - whether this is a good thing depends on your point of view.
Fast-track will suffer a similar fate. The FSA has stopped short of proposing it be banned but lenders will have to be sure income is verified in every case. In spite of all the analysis showing how low arrears and ultimately consumer detriment is for this category of mortgages it seems this is the death knell.
One positive change I would highlight is the demonstrable shift made by the FSA away from product regulation to the regulation of advice. This is an infinitely preferable place to be.
Last year I argued that the FSA had no place restricting an individual's freedom to choose how they live and how they spend their money.
In moving the onus from banning products outright to creating an advice environment where the right people get the right advice and take the product that is right for them the FSA has achieved the end it sought but by the right means.
For this it should be congratulated.
But while this MMR is the closest the FSA has come to getting it right for the future mortgage market it puts a large question mark over the future of our housing economy.
In light of last week's downgraded 2012 forecasts for gross lending from £150bn to just £133bn and net lending of a measly £5bn, one has to ask whether the Council of Mortgage Lenders perhaps knew what was coming and wanted to get this "outcome" out of the way before the FSA published.
MMR may be better than expected and for that we should be grateful. But we should not let pride get the better of us.
The Greeks knew the point at which you think you've beaten the enemy is usually the point you get an arrow in the back.
Let us hope the health of the market does not fail next year and prove this true.
- MMR consultation paper published
- MMR: BSA welcomes FSA proposals
- MMR: CML supports FSA proposal
- MMR: Interest-only stays
- MMR: Imminent implementation if agreeable
- MMR: Consultation dates announced
- MMR: Core underwriting principles announced
- MMR: Mortgages to fund business may be exempt
- MMR: AMI praises FSA proposals
- MMR: Lenders can lend into retirement
- MMR: FSA to scrap IDD
- MMR: Double KFI trigger dropped
- MMR: Self-cert and fast-track banned
- MMR: Proposals to improve fraud detection
- MMR: Equity release to be single market
- MMR: All equity release sales to be advised
- MMR: Proposals will cost industry up to £170m pa
- MMR: Summary of the proposals
- MMR: This is it, not much left to change
- MMR: Borrower responsibility matters
- MMR: No date for individual registration
- MMR: New rules on bridging advice
- MMR: Affordability rules for bridging
- MMR: Bridging not arrears management strategy
- MMR: Bridging put under the microscope
- MMR: Non-bank rules to apply to bridging
- MMR: One in 40 locked out of homeownership
- MMR: IMLA welcomes latest FSA proposals
- MMR: Pink says proposals are a boon to brokers
- MMR: Lenders may choose direct over brokers
- FSA fines ASU insurer for TCF fail
- Market to see gradual recovery in 2012
- Now is optimum time to rent
- Tower Bridging joins the Association of Short Term Lenders
- MMR: Mixed response from industry
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