Lenders' mortgage rationing claim

Published 03rd Dec 2008

Mortgage rationing is set to become more severe in 2009 without government action, according to a lenders' group.

Michael Coogan, director general of the Council of Mortgage Lenders (CML), said there were fewer active lenders - and with less money.

He suggested that mirroring 2008 lending levels next year would be "a real challenge".

Small institutions are set to spend up to a third of their profits covering the bail-out of bigger banks, he added.

Mr Coogan was speaking at the CML's annual conference on Tuesday at the end of what he described as a "momentous" year for the mortgage industry.

Stark picture

The speech painted a depressing picture for people keen to get on the property ladder in the near future.


A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession ... this would be a real challenge
Michael Coogan, CML

"Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again," he said.

"In fact, unless government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this."

His views to some degree mirror those of former banker Sir James Crosby, who suggested in a recent report to the chancellor that net new mortgage lending would pass the low of £15bn in 1995 and fall below zero.

UK house prices have fallen by between 10% to 15% so far this year, and with mortgage approvals down 74% on a year ago, there is the expectation of further property price falls.

"A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession ... this would be a real challenge," Mr Coogan said.

Bail-out pain

He claimed that some building societies would make a loss this year.

He said other small financial institutions were seeing their profits hit as an "unintended consequence" of moves to protect customers with failed banks.

The government wanted to avoid tax-payers having to cover compensation paid to those who lost money with the Icelandic banks.

But instead it was financial institutions of all sizes that had to cover the cost, through the annual financial services compensation scheme.

This cost some of them up to 20% to 30% of their annual profits, he said.

He said it was unfair that small, safe savings institutions were hit financially by the failure of bigger organisations with riskier businesses.

Struggling homeowners

Back on the subject of home loans, he welcomed the decision by the mortgage industry to delay the process of repossessions for borrowers in financial trouble.

House keys
The market will not return to 2007 levels, says the CML

But he called for more support from the government, proposing a "backstop scheme" that would allow people to sell a property to their lender which they could rent back.

This would stop the need to go to court, underpin property prices and allow people to stay in their own homes, supporting local communities, he said.

Ahead of Thursday's decision on interest rates, he criticised as "short-sighted and counterproductive" government pressure in the past on lenders to pass on a Bank rate cut to standard variable rate customers.

He claimed that this in turn was pushing down interest rates offered to savers.

In a separate speech to the conference, Jon Pain, of the Financial Services Authority, warned lenders that they must keep to contractual rules when passing on cuts to customers.

He said that any floor on tracker mortgages - that stop the interest rate on repayments dropping past a certain rate even if the Bank rate falls - must be made clear in an initial mortgage contract.

The Liberal Democrats Treasury spokesman Vince Cable, in a speech to the same conference, warned that there should be no return to "irresponsible" mortgage lending.

"The industry should now be exploring new products to restore faith in mortgage lending," he said, proposing safe, simple and cheap mortgages insured for five years through the markets.

Source: ' bbc '

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