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IMLA analysis flawed to say regulation is hurting first-timers – Blackwell

by: Lynda Blackwell, consultant at Thistle Dhu
  • 21/10/2019
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IMLA analysis flawed to say regulation is hurting first-timers – Blackwell
I read the Intermediary Mortgage Lenders Association (IMLA) report on ‘The intergenerational divide in the housing and mortgage markets’ with dismay.


I think it is flawed in its analysis and dangerous in its suggestion that a review of regulatory standards is required.

It is important not to forget that the Mortgage Market Review (MMR) was put in place, as former chairman of the Financial Services Authority Adair Turner said at the time, to ensure that ‘better practice endures in future when memories of the crisis recede and the dangers of poor practice return’.

Memories of the crisis seem to be fading fast and dangers of poor practice starting to emerge.

Only this week there have been stories in the trade press about bringing back 100 per cent mortgages and revamping the sub-prime and interest-only sectors.

This is a push in an otherwise challenging market to grow market share by bringing back the so called ‘good old days’ when practically anyone could get a mortgage.

That’s not a smart move and I hope the regulator is paying close attention to those suggesting it.


‘Analysis is flawed’

It is disappointing to see IMLA supporting this view. IMLA claims that contrary to popular belief, it is not high house prices that is the main cause of the fall in first-time buyer (FTB) numbers.

It is, in fact, the tightening of lending criteria following the financial crisis and the MMR and its ‘enhanced affordability requirements’, the unavailability of interest-only loans and enhanced capital requirements that have caused the significant reduction in FTBs.

The accompanying analysis substantiating this claim starts in 2005. Taking a longer time horizon, however, would clearly show that FTB numbers started to fall in 2002, way before the financial crisis and any subsequent action by the regulators.

This claim that it is not high house prices is based on a piece of analysis using the Nationwide House Price to earnings ratio.

The Nationwide ratio assumes a single adult is the likely first-time buyer. Data from the English Housing survey shows that around 80 per cent of first-time buyers are in fact couples. The analysis is therefore flawed.


Very different picture

Using UK Finance data produces a very different picture that reflects all the stories we read about house prices simply being out of reach of the ordinary FTB.

It is also pretty ironic that in the same week that the IMLA report is issued bemoaning the reduction in FTB numbers, UK Finance is reporting that FTB numbers are now back at late 2007 levels.

In fact, a closer look at the data shows that FTB numbers are now back at the sort of levels seen from 2003 to the start of the crisis.

IMLA also complains about a sharply reduced availability of high LTVs and makes the assertion that ‘the regulatory changes that have been enacted since the financial crisis have deterred lenders from relaxing criteria as they would have in previous recoveries and that tightened affordability requirements make it harder for borrowers to qualify for higher LTV loans…’.

There is no analysis supporting these claims.

It is available: The Bank of England Credit Conditions Survey clearly shows that lenders’ attitudes toward high loan to value lending has recovered sharply from post-recession lows.

But, as we saw in the analysis underpinning the MMR, high LTV lending is higher risk.


Common sense agreement

Since the MMR, continued analysis on this by the Bank of England and the European Central Bank has confirmed that high LTV is an important risk factor when it comes to predicting arrears and potential repossessions.

The whole point about the enhanced regulatory standards is to reduce lending to those who risk facing arrears and losing their homes and to encourage stable home ownership rather than home ownership at any price.

The industry came together to back the MMR reforms on the basis that they were common sense principles serving the interests of both lenders and borrowers.

I hope common sense continues to prevail.


Lynda Blackwell is a consultant and ex-mortgage manager of the FCA


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