The director general of the Council of Mortgage Lenders (CML) is a man who needs to wear many hats. As the main representative of UK lenders, he has to sit on numerous boards and committees, both here and in Europe, and fight the corner of the British lending community. As such, the present incumbent, Michael Coogan, finds that his legal training is invaluable in helping him to wade through many dense documents in order to identify the key points, and then in arguing the most advantageous way forward for our diverse lender market.
Unsurprisingly, Coogan is a loquacious man, at ease discussing topics on a wide range of financial subjects and switching back and forth between inter-related points with confidence. However, he really should feel comfortable when batting for the CML, as he has been involved with the trade body since its inception in 1989.
He now leads a much more secure market, both in itself and within the wider economy, than when he joined the fledgling CML almost 15 years ago, and he has become used to eulogising the positives. For example, when it launched brokers were treated with suspicion, but it has now recognised the contribution they have made to the success of the market. Coogan says: ‘The CML has come a long way since the early days when a predecessor of mine was accused of saying that intermediaries were the major cause of mortgage frauds and could not be trusted. We now have an environment where they are seen as major partners in the distribution of mortgages.’
Coogan is a pragmatist and understands that in his position he must pursue every opportunity for the advancement of the lending community, Commenting on what he feels constitutes success, he says: ‘I judge whether we have achieved a favourable operating environment by looking at what markets have developed. Over the past few years, we have seen the maintenance and growth of social housing and funding, and buy to let, and equity release is starting to take off too. Speaking about the homeownership market in the Budget, Gordon Brown mentioned we had achieved 70% and we should now aspire towards 80%, therefore there is a gap that I can continue to help try to fill by promoting the industry overall.’
However, as an advocate of sustainable homeownership, Coogan does not believe that people should be forced towards this 80% ‘utopia’. He says: ‘Peoples’ aspirations mean they do not always want such a large financial commitment hanging over them. But, at the same time, a lot of people see rent as dead money and do not want to give the money to landlords if they can reap the benefit of the investment themselves. What we have to do is provide housing finance to cover all these options so social housing, private renting and homeownership are all funded by residential mortgage lenders. If 80% want to do it and it provides them with a safe haven, a home they are able to control, it is important we help them to meet these aspirations.’
Personally, Coogan has concerns about whether sustainable homeownership will be as attainable as is hoped. With the media picking up on increasing income multiples and suggesting that a possible rise in interest rates could be catastrophic, he points out that lenders need to remember the lessons of the past and ensure affordability remains a priority. He says: ‘The key thing for us is sustainability, so borrowers should not borrow more than they can afford. When they do take out a loan they should think about what they can do if they lose their jobs. Unfortunately, we live in an environment where lenders and borrowers take a short-term view and forget history. Those of us who were here in the late 1980s and early 1990s can remember some of the pain that was felt by everyone.’
With the last crash occurring during the formative years of the CML, it is clearly an issue of some concern to Coogan. While he acknowledges his role is to push UK issues to the fore, having UK house price increases at the top of the world league tables at the moment is clearly not something he is happy about. Indeed, he thought house prices were increasing too fast as long ago as last summer and was one of the few within the industry to suggest that interest rates should have been put up modestly to temper that. His main concern is that it creates pressure on first-time buyers entering the market, which, according to the CML, fell to the lowest level in history last month.
Nevertheless, he is loyal to the CML’s membership and refuses to criticise them, even though one lender has now publicised its willingness to offer six times income multiples. He says: ‘This is not necessarily bad, because someone on a salary of £100,000 can afford quite a lot in mortgage payments. The reality is that income multiples would have to be stretched out to enable some borrowers to get into the market at all, and that is why we are keen to get supply improved ‘ to reduce the pressure on house prices and reduce the pressure on ever increasing income multiples. The Bank of England has done a good job and I cannot see interest rates moving significantly, but there is a huge investment in Gordon Brown being right and there is scepticism whether he has got his forecasts correct.’
One of the successes of the UK market, and something which Coogan measures his success by, has been the development of flexible mortgages, which could offer some protection to those who can build up a ‘buffer’ in anticipation of any financial problems in the future.
‘Statistically we are likely to experience some or all of the things that reduce our income such as having children, losing a job for a period, or divorce, all of which causes us to borrow back more and I think that is what we want in the UK. We are further ahead than any other country, with the exception of Australia, in being able to manage our finances through a phone call to the bank rather than a long tortuous process every time we want to borrow some money,’ says Coogan.
And despite fears that the Consumer Credit Directive planned by the European Commission could put an end to this, from his time arguing the case in Brussels he is quietly confident that it will not happen. It is here that his legal training comes to the fore, as the ‘legalese’ used in Europe is something he is more than qualified to cut through. ‘I have decried the European Commission for threatening to bring us back to the dark ages. In other parts of the Commission, we are talking about how to export things from the UK to the rest of Europe through cross-border lending, but it has a very protectionist ideal around consumers which is nannying rather than empowering. From discussions so far, I am optimistic we have flagged up both the anomalies both from an industry and a consumer perspective that the directive, which has been drafted, creates. So I am confident we will end up with the right result, he says.’
When discussing the UK in a wider sense it is clear that Coogan still feels the UK mortgage industry can more than hold its own against most other countries. He is robust in his dismissal of the Government’s apparent belief that the US is hallowed ground, and the Budgetry announcement of the investigation into the possibility of introducing American style long-term mortgages. Coogan says: ‘My own judgement is that this is designed to delay a decision on the Euro referendum. It is a perfectly acceptable excuse. There is a theoretical risk that borrowers in the UK could be worse off because of interest rate policy being set in Europe, but the question could be turned around. Why do UK borrowers choose variable rate loans?’
One of his pet theories is that UK borrowers choose variable rates because they do not like committing long term to deals, and because the remortgage market is effectively free for many borrowers. It differs to the US which allows free exit from most long-term deals but the introductory fees on these loans are quite significant for people entering into a fixed rate deal.
If the interest rate rises it does not affect them, but if it falls it creates a huge amount of work as everybody decides to refinance all at once, and then no work at all if they all decide not to. He says: ‘I am not convinced that lenders would be able to make it cheap enough for borrowers to choose long-term rates and even whether consumers would buy it. The UK seems set in short-termism’
As a cautious man, Coogan does not make these statements lightly. Perhaps joining the industry’s trade body at the time of the last crash has made him overly cautious, but as the industry representative he is paid to be cautious. After all who wants to preside over a spectacular housing market crash?