FSA Mortgage Market Review - Enness's View

With the FSA’s much anticipated ‘Mortgage Market Review’ launched this week it has been interesting to see the various different opinions and comment in the media, so here is my own view on this week’s news.

For some commentators this could be a lot of ‘hot air’ on the FSA’s part, to make it look like things will change dramatically when in actual fact not much will really change, vis-à-vis City bonuses.

Others opine that most Banks have reigned themselves in sufficiently that their current lending standards are Draconian in comparison to the standards of 2 years ago and therefore this a little bit too late and the market has self-regulated accordingly.

My own view is that I think by the time these measures have been introduced they will be hugely watered down and it will probably end up making very little difference. If you look at the demands that were being made in the press a year ago on the mortgage market, what has actually been proposed is already a much tamer version; there is no mention of limiting income multiples or completely outlawing high loan-to-value mortgages, and by the time they are interpreted and come into practice, I imagine it will be tamer still.

It seems the biggest change will be a tightening of criteria on those that can’t prove income or have irregular/complex income streams. This is a good example of something that may not have been completely thought through or something that may have to be watered down somewhat as quite how the FSA expects those who have been able to obtain such finance in the past, and then subsequently left to sit on SVR, will be able to afford such loans when the base rate begins to climb is an unknown.

Interestingly enough all the Banks that the government have a stake in have been told they have to up their lending next year. For example Northern Rock which is 100% government owned were set a target of 5bn to lend this year. They are currently at 3.5bn so the advent of the fourth quarter has seen them drop rates and loosen criteria considerably to attract more business. Next year their lending target is 9bn, and with RBS and Lloyds (assuming they can’t buy the Government out) having been given similar instructions I can’t help thinking that these instructions may take precedent.

Overall I think it might just be a political ploy (although the FSA is supposedly autonomous), in that Labour can campaign on this and then whoever gets in can choose whether or not to implement it and to what level. The fact that in their present format these ‘rules’ will only serve to strangle the market further, and whoever forms the next government is not going to want a protracted recovery or worse still a return to recession, they may well get lost in translation.

Either way it will be an interesting next couple of months but we’ll keep you posted.