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SPECIAL FEATURE: Potential threats

Ryan Fowler

September 8, 2014

This time last year I hadn’t heard of ‘Islamic State’ extremists and, let’s be honest, how many of us could have accurately pinpointed Ukraine on a world map?

But today, the greatest threat to security in the UK is not the IRA or Al Qaeda but a jihadist group that we had no idea even existed a few months ago. It demonstrates very clearly the importance of looking forwards and not pondering too much on the past – there’s no point developing a strategy based on historical events.

The same principal applies to the mortgage market. We need to better understand the potential threats to market stability in the years to come, rather than being overly concerned about past issues.

Sure, we have to learn lessons from the past and the introduction of MMR is a clear demonstration of historical problems being addressed. But there is also a need anticipate potential problems that may be coming down the line in the future.

Unfortunately, the industry – and regrettably I mean the whole financial services industry and not just the mortgage sector – does not have a great track record when it comes to anticipating change. The best example is the credit crunch which caught the whole industry sleeping when, in hindsight, the early warning signs of a seismic shock were there for all to see.

I do accept that predicting the future is tough and nowhere more so than in the financial services sector. But so is predicting earthquakes and volcanic eruptions and it hasn’t put scientists off trying! And slowly but surely they’re making progress, because they’ve become good at linking-up complex factors which, when considered together, start to give a clear indication of potential trouble ahead.

As far as the financial services market is concerned, I’m not just taking about analysing obvious indicators such as interest rates, house prices and consumer confidence, but looking beyond them and trying to see what issues may affect the whole sector in two, three or five years time.

What are those issues likely to be? The honest answer is that I don’t know, but the financial services industry is full of clever people who do have a clue. And, as with predicting volcanic eruptions and earthquakes, the real skill is in linking together a myriad of different factors to get a meaningful picture of likely future outcomes.

Surely, now is the time for the industry to fund some longer-term forecasting? The CML is excellent at modelling lending volumes using key housing market criteria for the next couple of years, but we also need to plan over a longer time frame and take into consideration global economic factors that may destabilise the UK housing market – or provide it with an unexpected boost.

Yes, there are plenty of reasons for not trying to develop such notoriously difficult forecasts. They are very difficult to get right with any degree of accuracy; they can be very controversial; and they can also be expensive for little immediate return. But as JFK once famously said: ‘We should do these things not because they are easy but because they are hard.’

Why bother? Because the big payoff would be avoiding future debacles such as the credit crunch, economic recession and another housing market slump. Stimulating growth is part of the answer to future prosperity; but avoiding trouble is equally as important.


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