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by: Mortgage Solutions
  • 19/11/2009
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At the recent Mortgage Expo, the Intermediary Mortgage Lenders Association (IMLA) said the Mortgage Market Review (MMR) was detracting from the main issue in the market – a chronic lack of funding. Do you agree with its view? What steps can the industry take to tackle the funding issue?

Name: Alan Cleary
Company: Exact Mortgage Experts

IMLA is correct that a chronic lack of funding is choking the housing market but generating new liquidity has little to do with the FSA. The MMR is about consumer protection and promoting a stable market.

It is the Bank of England’s role to stimulate funding for the greater good of the economy. While quantitative easing has been extended, I do not think it is having the desired effect as its whole point is to get banks lending again. This clearly has not happened in any meaningful way.

More worryingly, the MMR floats a few ideas that suggest it is prepared to stifle non-banks from entering the market. I hope that this is not on the table, as non-banks could in theory bring much needed liquidity into the market.

Banks are also being hit by the prospect of having to hold significantly more capital than they have ever done before. The FSA paper, Strengthening Liquidity Standards, seeks to regulate banks to stress test their deposit base in a much more aggressive manner than ever before and to hold more capital in liquid assets such as government bonds. This will encourage banks to lend less not more.

Therefore, the Government and the Bank of England are trying to create more liquidity but the regulator is forcing lenders to be more prudent.

Ultimately, there are not enough retail deposits in the UK to fund a mortgage market of our size, so new lenders will need to enter the market, bringing with them new ways of funding mortgages that meet the regulator’s objectives. n

Name: Brian Murphy
Company: Mortgage Advice Bureau 

I would tend to agree in part with the IMLA comment but would add that the industry only has a fairly small window in which to present its views and criticisms and to offer up alternative arguments before potentially all or many of the proposals within the MMR discussion paper become enshrined in regulation.

I would certainly take the view that IMLA is correct in that the chronic lack of funding is the primary issue affecting the market but failure to voice concerns over what is proposed within the MMR could result in regulation being shoehorned into place without any form of debate taking place.

Certainly, the Association of Mortgage Intermediaries, the Council of Mortgage Lenders and others have been effective in the past in lobbying the regulator to amend previous proposals, so I think it is right that the debate is taking place as several of the proposals seem over rigid without offering any alternative options as compromise.

The large distribution groups are continually having dialogue with former, existing and potential new lenders in an attempt to provide more funding but the barriers to entry are now higher and the regulator has commented that it has discouraged several potential new entrants by raising the requirements for entry.

The Building Societies Association also recently commented that it fears being backed into a corner through an over-rigid interpretation of the capital adequacy requirements which could result in building societies being even less able to compete than they currently are. n

Name: Richard Morea
Company: London & Country

Peter Williams at IMLA is right in warning of the danger of letting the MMR overshadow the lack of mortgage funding, but equally we cannot afford to ignore the review given its potential to shape the market.

The proposals could stifle innovation and even exclude some borrowers from the market altogether, but is that not where we are right now? As we have the opportunity should we not look to do everything possible to ensure that the eventual legislation is as workable as possible?

Clearly, we want a framework which will encourage new lenders to enter the UK market and the concern that making it difficult for them will be detrimental to consumers is a real one. However, whether these new players are encouraged or excluded, they are unlikely to be queuing up soon so the lead to free up funding has to come from within.

That job falls to the Government. As the major shareholder in three of the main lenders, it needs to ensure those lenders take the lead in restoring the flow. Recently, we have seen encouraging signs from Northern Rock, and where they lead, the competition should follow.

In the longer term, the MMR will shape the future, whether we contribute or not. To have legislation of value which does not have to be tinkered with and which will help build a sustainable market, we need open discussion from all parties including the FSA.

We need discussions which are forward looking and which do not look to apportion blame for the current crisis.

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