Jump to content
House Price Crash Forum
Sign in to follow this  
FreeTrader

Financial Conduct Authority To Undertake Mortgage Market Study In Early 2016

Recommended Posts

Speech by Christopher Woolard, Director of Strategy & Competition, FCA, delivered at the FCA mortgage conference, London, which starts today.

http://www.fca.org.uk/news/mortgage-conference

Are we going to see some backtracking on MMR?

So while it’s right to guard against complacency, especially given the tendency of financial history to repeat itself, there’s no doubt there are key differences between 2015 and the unsustainable lending levels of 2007.

The first big difference here is what appears to be a shift in the risk appetite of industry.

The second comes in the form of regulation, with stricter international and domestic capital and conduct requirements. Including the introduction in the UK last year of the FCA’s Mortgage Market Review (MMR), as well as work by the Bank of England and the Financial Policy Committee.

That some questioned whether the impact of those interventions might lead to a drying-up of the market is a matter of public record. The MMR alone was predicted to affect mortgage approvals by anything up to 20 per cent.

Looking back now, it’s difficult to square those forecasts with actual market activity. Particularly when you assess the number of mortgage approvals post-MMR versus pre (43pc against 41pc).

But there is clearly a question here as to what the ideal level of activity is and how you achieve it.

No-one, frankly, wants to return to the unaffordable lending practices of the past, where almost every application was approved. And this is likely to mean (among other things) that assessments of mortgage applicants’ circumstances will continue to require more care than they did pre-crisis.

We do, however, have to remain sensitive to the impact of these reforms over the long run. And we certainly need to keep focussed on outcomes and whether the market is working well. Even if we believe our rules are proportionate, we need to remain alert to how firms are interpreting them and the effect on consumers.

That is why we will be undertaking a mortgage market study soon, which will include a review on key aspects of the implementation of the MMR.

[...]

Now, unpacking that challenge is clearly of enormous consequence. It involves near-term changes that we can see reasonably well, including changes in areas like regulation.

But it also includes challenges that need to be viewed through a longer-lens. Including fundamental questions around areas like competition. Eighty per cent of the mortgage market sits in the hands of six main players.

That competition can play a key role in ensuring the mortgage market works well is in little doubt. If competition is functioning effectively, it should lead to lower prices, better consumer service and more innovation in the form of products that better address consumer needs.

Inversely, if competition does not work well, we know you quickly run into a host of potential issues.

So, for instance, consumers not buying mortgage products or services that are appropriate for their individual needs or circumstances. We might find customers paying too much for the products or services they receive or opaque pricing split between headline rates and fees. Or faced with a lack of real choice even though a number of firms may offer similar products.

Market features need to facilitate competition. Regulation is not the be all and end all, but can have an important impact on how well competition works – in fact, many aspects of the regulatory regime are designed to affect the ability of firms to enter or be present in a market and the type of products they offer.

But, we need to ensure that , in doing so, they do not put an unnecessary constraint on competition. Although much of the market is based around the idea of the 25 year mortgage with some kind of fixed or capped element, we have to ask ourselves whether that will always be the case.

The relevance of all these issues is at the origin of the commitment in our Business Plan to undertake a market study starting early in 2016 on those aspects of the mortgage sector that may not be working well.

Share this post


Link to post
Share on other sites

It is a difficult balance to strike

My instinct tells me that lenders should be able to lend what they want to who they want, based on rules about being able to pay out investors / savers on demand (even if that is covered partly by taxpayers)

However, because lenders were bailed out when they got into trouble last time, allowing that level of freedom to lenders now could be a huge risk - they are working as if they would be bailed out again as far as I can see. On the basis that confidence in the financial system is important to the proper functioning of the wider economy (and even if it isn't, bailing out the financial system was / is), exerting some form of control over how lending business is conducted does seem necessary with the market structured as it is.

I don't like government interference in markets. That includes bailouts.

MMR probably did, by necessity, go further than it should have done in reducing mortgage lending. Perhaps it is time to loosen the screw a bit?

Share this post


Link to post
Share on other sites

Speech by Christopher Woolard, Director of Strategy & Competition, FCA, delivered at the FCA mortgage conference, London, which starts today.

http://www.fca.org.uk/news/mortgage-conference

Are we going to see some backtracking on MMR?

Funny because Cunliffe recently said:

"...we should not imagine that there is some recent halcyon world of banks supporting the real economy to which we can quickly return if the regulatory straitjacket is loosened. The system was badly distorted in the long run up to the crisis. The post crisis world requires a major adjustment in bank business models. This is not some unintended consequence of overzealous regulation. It is a necessary, if painful adjustment to a new reality.

Some numbers from the UK illustrate this point starkly. In the long upswing of the credit cycle, the stock of domestic lending by UK banks in the UK grew enormously from 95% in 1997 to 170% of GDP in 2008. The stock of non-property lending to companies as a proportion of GDP, however, grew only modestly from 19% in 1997 to 23% in 2008. Meanwhile, mortgage lending increased from 45% to 70% of GDP; lending to real estate tripled from 5% to 15% of GDP; and lending to the UK non-bank financial sector - including institutions like hedge funds, securities dealers and insurance companies - shot up from 25% of GDP to 60%. And these numbers do not count the explosion in UK-owned banks' overseas exposures which more than quadrupled between the end of the 1990s and 2008.

In other words the massive increase in the stock of lending - an increase of £1.7 trillion in absolute terms - did not lead to very much of an increase in productive investment at all. Of course there are benefits in enabling people to buy their homes. And much of the financing of financial markets almost certainly came back to productive investment in the form of market investments in business. But as we discovered in the crisis much of the lending appears to have financed the increase in house prices and a large part of the market investment was simply misallocated and lost.

Nor did this increase in lending drive a commensurate increase in economic growth in this particular credit cycle. Over the period 2000-2007 GDP growth averaged little more than its long-run average of around 2.8%. In fact, business investment over the period averaged just 1.3% a year and it appears that most of this was related to commercial real estate."

Share this post


Link to post
Share on other sites

In other words the massive increase in the stock of lending - an increase of £1.7 trillion in absolute terms - did not lead to very much of an increase in productive investment at all. Of course there are benefits in enabling people to buy their homes. And much of the financing of financial markets almost certainly came back to productive investment in the form of market investments in business. But as we discovered in the crisis much of the lending appears to have financed the increase in house prices and a large part of the market investment was simply misallocated and lost.

Nor did this increase in lending drive a commensurate increase in economic growth in this particular credit cycle. Over the period 2000-2007 GDP growth averaged little more than its long-run average of around 2.8%. In fact, business investment over the period averaged just 1.3% a year and it appears that most of this was related to commercial real estate."

I love "reports," like this. Let me translate ... amazingly ... bailing out all our massive investment mistakes and allowing others to enter into the same investment mistakes appears to have suppressed economic growth.

AMAZING! sounds exactly like the conversations I had with the IMF in 2007 .. although I was trying really really hard not to think "you are a retard," throughout those I am no longer capable of such feats of self denial.

Share this post


Link to post
Share on other sites

I love "reports," like this. Let me translate ... amazingly ... bailing out all our massive investment mistakes and allowing others to enter into the same investment mistakes appears to have suppressed economic growth.

AMAZING! sounds exactly like the conversations I had with the IMF in 2007 .. although I was trying really really hard not to think "you are a retard," throughout those I am no longer capable of such feats of self denial.

Conversations with the IMF. Did they include discussing whether transfers from A to B would wash in the universal language of retrospective finance explanations as 'misallocated and lost'?

Share this post


Link to post
Share on other sites

No-one, frankly, wants to return to the unaffordable lending practices of the past, where almost every application was approved.

:lol::lol:

In other words - "Yeah but yeah but yeah but..................."

No-one - is he sure? I'll bet there's plenty chomping at the bit to return to their good old days - that's if they haven't started in a small way already.

A market study starting in 2016 and finishing when? - just in time for a few "£tweaks" a couple of years before the next general election?

Edited by billybong

Share this post


Link to post
Share on other sites

They could be dishing out 100% mortgages again. I won't be applying at these house prices. Many HPCers believe mortgages create themselves, and £500K semi buyer is purest innocence.

I tend to look at these reports as 'sustaining the morale of the home-owners'. There's not going to be any widespread easing for OO lending imo.

They may relax MMR after the HPC.

Share this post


Link to post
Share on other sites

Yes of course lenders should be able to lend as much as they want to who they want. no-one could foresee that 125% mortgages would create a problem that I and other taxpayers would need to pay for.

That taxpayers had to pay for it is the only part that was wrong

If a bank is bonkers enough to lend 125% on 8x+ earnings at the peak of a market and its shareholders let it, that is their call

As long as retail deposits are covered to the same extent as deposits in any other bank, I would let them get on with it

It might have worked out a bit more messily in the short term, but we (taxpayers) wouldn't be on the hook for sorting out that mess

I would prefer that

Share this post


Link to post
Share on other sites

They could be dishing out 100% mortgages again. I won't be applying at these house prices. Many HPCers believe mortgages create themselves, and £500K semi buyer is purest innocence.

I tend to look at these reports as 'sustaining the morale of the home-owners'. There's not going to be any widespread easing for OO lending imo.

They may relax MMR after the HPC.

IMO the mortgage market would be in a lot better shape if FLS and other schemes that give banks access to ultra cheap, risk free money to lend hadn't been introduced

Maybe not introducing such schemes would have already led to a correction in house prices and put the market onto a sensible footing against which lending was to be made

It might have been messier in the very short term, but I think that now (i.e. crisis +7 years), things would have been better all round - especially for the taxpayers wallet

Truth is we will never know how it would have worked out if an alternative path had been taken

Share this post


Link to post
Share on other sites

IMO the mortgage market would be in a lot better shape if FLS and other schemes that give banks access to ultra cheap, risk free money to lend hadn't been introduced

Maybe not introducing such schemes would have already led to a correction in house prices and put the market onto a sensible footing against which lending was to be made

It might have been messier in the very short term, but I think that now (i.e. crisis +7 years), things would have been better all round - especially for the taxpayers wallet

Truth is we will never know how it would have worked out if an alternative path had been taken

This is most of the problems we are experiencing now,it`s all about bailing out the over indebted this includes OO and BTL if it was not for FLS i would bet the average mortgage rate would be a couple % if not higher now

I would agree with let the banks lend at whatever multiples the like ,but that would have to come with an explicit remit from the government that if they get in to problems they are 100% on their own and will be left to fail

Share this post


Link to post
Share on other sites

It is a difficult balance to strike

Er no....... it's quite simple actually. 3 x real - non LIAR income. Period. End of story. NOTHING else.

But of course --- PREDATORY LIAR LOANS are what turbocharged the "prices" --- and are keeping them artificially high now. Don't kid yourselves. PREDATORY LIAR LOANS are very much still with us --- it they weren't - the whole giant Ponzi scam would collapse in about 3 days. :wacko::unsure::rolleyes:

Share this post


Link to post
Share on other sites

Er no....... it's quite simple actually. 3 x real - non LIAR income. Period. End of story. NOTHING else.

But of course --- PREDATORY LIAR LOANS are what turbocharged the "prices" --- and are keeping them artificially high now. Don't kid yourselves. PREDATORY LIAR LOANS are very much still with us --- it they weren't - the whole giant Ponzi scam would collapse in about 3 days. :wacko::unsure::rolleyes:

if you want to go that far (which is, imo, at least as bonkers as 125% 8x LIAR income ever was), you may as well just ban commercial lending into the mortgage market and have it all done through NS&I only

some people might like the sound of that, I don't

I prefer to let banks decide their own risk, raise their own capital (outwith taxpayer funded subsidies etc.) and live or die by the consequences

Share this post


Link to post
Share on other sites

I've said it before and I will say it again. I really love Steve Keens idea of only being able to borrow 10x the yearly rent that a house could acheive. And then the person with the most savings gets the house.

Share this post


Link to post
Share on other sites

I've said it before and I will say it again. I really love Steve Keens idea of only being able to borrow 10x the yearly rent that a house could acheive. And then the person with the most savings gets the house.

sounds like a recipe for increased rent inflation to me

Share this post


Link to post
Share on other sites

Speech by Christopher Woolard, Director of Strategy & Competition, FCA, delivered at the FCA mortgage conference, London, which starts today.

http://www.fca.org.uk/news/mortgage-conference

Are we going to see some backtracking on MMR?

Odd choice to cut this bit, FT.

The most significant of those questions being: how do you manage the long run challenge of house prices rising faster than wages?

For close to a 100 years, the answer to that question has been remarkably consistent. Loosen lending standards.
Post-crisis, no-one is seriously arguing for more of the same medicine. Nor is there a sensible economic case for doing so, especially in the current context. Slackening lending standards when supply is constrained, as it is now, implies a pretty simple equation.
Stimulating demand will lead to rising prices. This is economics 101.
A core affordability question for today then is can we – in industry as well as regulation – find solutions here that make sense in the real world.
The answer, in all likelihood, will not be easy, certain or singular. It will come from a combination of factors, including: ongoing assessment of regulatory impact; market growth and innovation; and central government-led policy.

Share this post


Link to post
Share on other sites

Post-crisis, no-one is seriously arguing for more of the same medicine. Nor is there a sensible economic case for doing so, especially in the current context. Slackening lending standards when supply is constrained, as it is now, implies a pretty simple equation.
...
...
The answer, in all likelihood, will not be easy, certain or singular. It will come from a combination of factors, including: ongoing assessment of regulatory impact; market growth and innovation; and central government-led policy.
Somehow it sounds like the answer is in fact arguing for more of the same medicine.

Share this post


Link to post
Share on other sites

Odd choice to cut this bit, FT.

Fair point BU, but having now read hundreds of these sorts of speeches over the past fifteen years I believe I've learned to read between the lines, and my take from this one is that the FCA believes that lenders have either been overzealous in their implementation of the MMR regulations or that they are being deliberately obstructive.

So while we may not see the FCA backtracking on the MMR rules as written, the framing of this speech suggests to me that we may well see some directional powers exercised that in effect weaken current operational lending standards.

The saddening thing is that once again the current depressed volume of mortgage issuance compared to historical averages is leading regulatory authorities to question whether the mortgage market is functioning efficiently and fairly. The idea that market activity is subdued because house prices are simply beyond the reach of most prospective borrowers is apparently still not on the radar of those in the ivory tower.

Edit: deleted "to maintain market share".

Edited by FreeTrader

Share this post


Link to post
Share on other sites

it is somewhat odd that Jamie Dimon, as CEO, can become a billionaire and make $20m a year in compensation whilst the bank has had to pay the thick end of $25bn in civil fines in the last couple of years

Share this post


Link to post
Share on other sites

Er no....... it's quite simple actually. 3 x real - non LIAR income. Period. End of story. NOTHING else.

But of course --- PREDATORY LIAR LOANS are what turbocharged the "prices" --- and are keeping them artificially high now. Don't kid yourselves. PREDATORY LIAR LOANS are very much still with us --- it they weren't - the whole giant Ponzi scam would collapse in about 3 days. :wacko::unsure::rolleyes:

+1

My privately rented house was first sold in 2001 for £41k. Sold again in 2003 for £80k. Now valued at £110k? Difference between 2001-now? Nothing. Everything is original fittings.

Raise rates, remove props and grab popcorn.

Share this post


Link to post
Share on other sites

Fair point BU, but having now read hundreds of these sorts of speeches over the past fifteen years I believe I've learned to read between the lines, and my take from this one is that the FCA believes that lenders have either been overzealous in their implementation of the MMR regulations or that they are being deliberately obstructive.

So while we may not see the FCA backtracking on the MMR rules as written, the framing of this speech suggests to me that we may well see some directional powers exercised that in effect weaken current operational lending standards.

The saddening thing is that once again the current depressed volume of mortgage issuance compared to historical averages is leading regulatory authorities to question whether the mortgage market is functioning efficiently and fairly. The idea that market activity is subdued because house prices are simply beyond the reach of most prospective borrowers is apparently still not on the radar of those in the ivory tower.

Edit: deleted "to maintain market share".

I think we may be being softened up for "innovation" eg lengthening the standard mortgage to 30 years+. It would make sense as people are having to work longer before collapsing in a heap with their hard-earned pensions. :rolleyes:

Share this post


Link to post
Share on other sites

I think we may be being softened up for "innovation" eg lengthening the standard mortgage to 30 years+. It would make sense as people are having to work longer before collapsing in a heap with their hard-earned pensions. :rolleyes:

They do seem to be laying the ground for a raise in retirement age.

Share this post


Link to post
Share on other sites

Fair point BU, but having now read hundreds of these sorts of speeches over the past fifteen years I believe I've learned to read between the lines, and my take from this one is that the FCA believes that lenders have either been overzealous in their implementation of the MMR regulations or that they are being deliberately obstructive.

OK, I get that. Thank you for taking the time to answer. I buy that interpretation as a possible interpretation and I accept that there are good grounds for the assessment you make.

However, I've got a tin foil hat theory on this, which relates to the departure of Wheatley, though this is real getting high on my own supply stuff to be taken with a shovel of salt. I think perhaps Osborne is going to use a nice smiley new FCA face talking in a friendly way as cover for the FPC putting the boot into the bubble by hitting the buy-to-let sector on financial stability grounds, (knowing full well that this may well be enough to prompt a bursting of the bubble in London and the South East). I just think Osborne is too good at politics to run an undue risk of being left standing there with a pin and a smirk, and I cannot see how we can permanently deprive big chunks of younger cohorts from the quasi-savings role of home ownership absent some serious changes to the level of rents which would allow then to save directly from leftover earned income. There is every reason to believe that the Treasury and the Bank have been working on the buy-to-let problem for years.

Share this post


Link to post
Share on other sites

This is most of the problems we are experiencing now,it`s all about bailing out the over indebted this includes OO and BTL if it was not for FLS i would bet the average mortgage rate would be a couple % if not higher now

I would agree with let the banks lend at whatever multiples the like ,but that would have to come with an explicit remit from the government that if they get in to problems they are 100% on their own and will be left to fail

The graph in the July Bank of England report showed that nearly all new net mortgage lending had gone into BTL. Also, there has been little lending to corporates and businesses.

I suspect that you could show that nearly all FLS money has gone into BTL.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Next General Election   94 members have voted

    1. 1. When do you predict the next general election will be held?


      • 2019
      • 2020
      • 2021
      • 2022

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.