Ever so slowly a consensus is starting to emerge about what to do to stop the sub-prime lending disaster and banking crisis from happening again. The signs do not look promising.
Under a plan published yesterday, the Conservatives want to scrap the Financial Services Authority (FSA), handing its regulating role to the Bank of England and its consumer role to a new Consumer Protection Agency (CPA). The party’s Plan for Sound Banking also makes two proposals that ought to make a big difference to the mortgage and housing markets.
First, it will end the ridiculous situation whereby first charge mortgages are regulated by the FSA but second (and subsequent) charge mortgages are regulated by the Office for Fair Trading. Both will instead be covered by the new CPA.
An under-reported aspect of the housing market crash is the extent to which the lending and borrowing binge was fuelled by second charge loans. The results are being played out in repossession hearings around the country and advisers estimate that the total of repossessions could be significantly higher than the widely quoted stats produced by the Council of Mortgage Lenders (CML), which only cover first charge loans. It seems obvious that all lending secured against homes should be regulated by the same agency and to the same standards.
Second, the Tories signalled that they are likely to move away from setting an inflation target based on the consumer prices index (CPI), which does not include any housing costs. They would probably revert to using the RPIX, a version of the retail prices index that does not include mortgage costs but does include other housing costs. That ought to ensure that the Bank of England at least pays some attention to the effect of interest rate decisions on the housing market.
What they did not say, as they attacked Labour’s tripartitie system of regulation for being responsible for the crisis, was that they were creating a tripartite system of their own.
Labour published its own white paper on Reforming Financial Markets earlier this month. It was long on identifying the problems caused by the buy-to-let, self-certified, high income multiple, securitised lending bubble and what the government has done to tackle the crisis but a bit shorter on long-term solutions.
But a number of measures that are crucial for housing are up for review over the summer with decisions due in the next pre-Budget report. These include the case for transferring regulation of second-charge lending the the FSA and for new powers for the agency to regulated buy-to-let lending.
Meanwhile, the FSA itself is due to publish a paper on mortgage market reform in September. This will cover the crucial issue of lending limits and a ban on loans of over 100% of the value of a home that provoked howls of outrage from estate agents and mortgage brokers when the idea was floated earlier this year.
With the FSA under a death sentence from the probable next government, the tide seems to have turned against measures to control Britain’s housing market, just as the issue of its tax treatment compared to other forms of investment has not made it beyond a few think-tanks. Without either, it seems to me that borrowers and lenders will always find a way to pump more money into the next housing bubble.
Welcome though some of the reforms being planned may be, the case for anything more radical appears to have been dropped in favour of business as usual.
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