Few in the mortgage industry can have failed to note that as part of a Conservative think tank submission to the shadow cabinet, the possibility has been raised that a future Conservative Government would consider the complete deregulation of the mortgage market.
Of the 211-page report, from the Economic Competitiveness Policy Group think tank, the total text dedicated to the regulation of the mortgage market is comprised of: “We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk.”
In fact, mortgage regulation is just one aspect of the UK economy examined in the submission. Transport, skills and training, pensions, energy policy, public sector efficiency and taxation are all scrutinised.
John Redwood, chairman of the Group, says: “We are living through a massive shift in economic power, as the Asian economies led by China and India emerge as global manufacturers, service providers and traders, with attractive offerings to the customers of the world. This could carry us to greater success, or they could destroy businesses and jobs at home if our economy is not well secured and supported by a Government that understands the needs of enterprise.”
Regulation is seen as a barrier to the necessary flexibility to meet this challenge. The British Chamber of Commerce, not itself a desperately left-wing organisation, has estimated £56bn as the extra cost of regulation brought in by the present Government.
The report says: “We propose an annual regulatory budget for the Government, setting out how much cost Government will impose on business in the following year, and ensuring that in each year of Conservative Government, the costs imposed will be reduced overall. We also suggest some regulations which the incoming Government should repeal in its first year in a Deregulation Act, to begin the long process of cutting this unwelcome, back-door taxation.”
Neil Johnson, policy manager at the Building Societies Association, is in broad agreement. He says: “This would need a lot of consideration before implementing – however, we agree with the underlying point that the risk is on the lender. In addition a lot of regulation is still out of line with the FSA’s principles-based approach, so a review would be timely. There is too much regulation.”
In fact, the report recommends that all regulations, and regulators, have a defined life span, and would be replaced whether they were effective or not. Commenting, Nigel Payne, managing director of lender The Mortgage Business, says: “This is all a little bizarre – why would you ever want to do this? You would certainly not want to unravel the regulation that has been put in place as far as lenders are concerned. Apart from the undoubted success of aspects such as the introduction of key facts illustrations, there would be a huge expense in detangling the lenders’ systems. There is no reason to go to the expense – it works.”
Housing in general is also a focus of the report, recommending that more substantial private sector mortgage money should be brought into the affordable housing arena. This would release public properties where national and local government still own the freeholds of rented accommodation. The report includes the sale to tenants of a proportion of the Ministry of Defence’s housing estate.
In addition to mortgage deregulation, the report recommends repealing working time regulations, repealing large chunks of the Data Protection Act, removing money laundering requirements from funds drawn on UK banks, ending the home information pack (HIP) requirements, and removing all companies and experienced investors from the regulatory umbrella on investment products.
Alan Cleary, managing director at Edeus, is a little sceptical. He says: “HIPs are a waste of time – losing them would be a vote winner. The present Government seems hell-bent on cooling off the UK housing market, so a lighter touch regulation, with reduced costs, would be good. However, getting rid of regulation completely is not really viable. Prior to the FSA we had a voluntary code – the market feels that regulation is required.”
This report remains a set of recommendations, and may be deemed too right-wing for party leader David Cameron’s cuddly ‘hug a hoodie’ version of Conservatism. Were he deposed by more right-wing members of his party, and the recommendations seriously considered, there would still remain serious barriers to the proposal’s adoption, not least Europe.
Even the report acknowledges that over half of UK regulation originates in Brussels. The UK’s habit of ‘gold-plating’ European legislation, adding to the minimum specified, is noted, but a certain degree of inevitability is acknowledged. The report says: “The UK Civil Service takes a very cautious approach to transposing Brussels regulation. It regards infraction proceedings in the European Court for a failure to transpose in full as a serious matter. The easiest way to avoid such proceedings is to overdo the implementation.”
The think tank has settled on a two-pronged approach to this perceived problem. It says: “Where the EU has the power to regulate, we should rely on EU regulation, and not put in place additional UK regulation.”
The second prong is a little more controversial: “An incoming Conservative Government should go to Brussels with proposals to deregulate the whole EU in a way that promotes more jobs and greater prosperity.”
While it is highly unlikely this report will be adopted wholesale, it does give a flavour of a future Conservative Government’s approach. n