Mortgage default rates are falling for the first time in two years and even loan availability could be about to improve. Crisis over and no need for increased regulation?
The improvement in default rates and losses on secured lending reported in today’s credit conditions survey from the Bank of England is against expectations. Mortgages are still in short supply, with a small net balance of lenders saying they had reduced the availability of secured credit to households, but this is expected to improve in the next quarter.
The survey comes as the leading industry organisations respond to government consultation on regulation that was launched when the market was still lurching from worse to worse and options like lending limits and a ban on mortgages of over 100% were being seriously considered.
But the Council of Mortgage Lenders (CML) said yesterday that the government needed to strike the right balance ‘between the promotion of reform and the imposition of costs and regulatory burdens on lenders that might unintentionally slow down recovery within financial markets and the broader economy’.
Responding to a Treasury consultation paper it said mortgage regulation by the Financial Services Authority (FSA) was comprehensive and ‘essentially robust and up to date’ and many lenders were already going beyond regulatory requirements to help customers.
And the Association of Mortgage Intermediaries (AMI), representing brokers, warned the FSA today against the introduction of mortgage product regulation. ‘AMI believes that the ultimate responsibility for a lending decision must rest with the lender and that on-going affordability cannot be regulated,’ it said. ‘Long-term affordability is down to a borrower’s behaviour and changing personal circumstances.’
The CML did back regulation of second charge lending through the FSA but rejected stricter control of buy-to-let loans, which it said were essentially commercial transactions that would be further damaged by inappropriate regulation.
Housing associations are likely to be as disappointed as consumer groups with the industry response. The National Housing Federation (NHF) complained in its manifesto last week that lenders were increasingly reluctant to lend on shared ownership because they mistakenly saw potential buyers as being more likely to default.
It said that if banks lent more on shared ownership associations would provide a buy-back guarantee on any loans that default. The next government should require nationalised banks to lend, it argued.
But lenders tell the Treasury that a number of shortcomings within the portfolio of low-cost home ownership products continue to limit their participation. There were too many different schemes and shared ownership was too complex and had a higher risk of default.
Meanwhile, schemes were too small and funding too short term for lenders to be able to predict future business and invest in complex administrative processes. ‘The CML recognises that the government has genuine difficulties in terms of forward funding commitments. Nevertheless, we believe that more needs to be done, unless this is to be seen as a small business opportunity which will be supported by few lenders,
Despite attempts to work with the Homes and Communities Agency and NHF on improvements to leases, mortgage protection clauses and arrears and possessions, lenders remain keener on shared equity.
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