What the papers say

Our new Prime Minister, Gordon Brown, has clearly signalled his interest in the housing market. Details are beginning to emerge and there has been considerable reaction to the plea for 25-year fixed rate mortgages.

In MS, Jonathan Cornell of Hamptons International Mortgages says: “I can’t believe the government is still going on about long-term fixed rates. It is flogging a dead horse”. Other commentators in MS share the same view.

Rosemary Gallagher reckons the government is trying to re-invent the wheel and reminds us of the ‘damp squib’ review by Professor David Miles some three years ago. Isabelle Kassam reckons that new Chancellor, Alistair Darling, is championing a Brownite view that has already been rejected by academics, lenders and, most importantly, borrowers. Mark Harris says that borrowers do not want 25-year fixes.

Griffiths says: “Well, that seems to be an unanimous thumbs down for long-term fixed rates.”

MS also reports that small broker firms, which account for 93% of all brokers regulated in the UK, want hard rules rather than principles from the FSA. This conclusion was reached by the FSA’s small Businesses Practitioner Panel. In its annual report, it also emphasised that smaller brokers continue to struggle with the regulator’s expectations regarding record-keeping and has called for case studies to help them.

Principles-based regulation

MI has a feature-length article on principles-based regulation by Andrew Strange, policy analyst at the Association of Mortgage Intermediaries. He makes the observation that the Financial Services Authority (FSA) has already defined 11 Principles for Businesses, one more than God’s commandments, which is telling. Principles really are at the heart of the FSA’s approach – they are in its blood. A contribution by Stephen Atkins of Freedom Finance looks at the European influence and says that the final overriding issue has to be whether principles-based regulation fits within Europe.

Mortgage fashions

In FA, John Heron, managing director of Paragon Mortgages, looks at the constantly changing face of the industry and the mortgage product types coming in and out of fashion.

Looking back over the past 10 years, there is the obligatory mention of the demise of endowment policies as the repayment vehicle for the loan and the related growth of interest only mortgages.

Only five years ago interest only mortgages accounted for 5 per cent of new mortgages, whereas today they account for around 26 per cent. Heron asks whether borrowers, lenders and advisers are storing up problems for the future by selecting interest only payments. He says that if there were evidence of significant numbers of consumers taking interest only loans solely because they are cheaper and without considering how to repay it, there would be grounds for concern.

Griffiths says: “No disrespect to John Heron, whom I regard as one of the smarter people in the industry, but why else would borrowers take out interest only deals? They make a larger property affordable.

House price inflation will generate increasing equity with the effect being that the borrower will be financially better off than if they had opted for a repayment mortgage.”

Publications mentioned

Financial Adviser FA 19 July
Mortgage Introducer MI 14 July
Mortgage Strategy MS 16 July

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