Whilst Laurence’s data and comment contributed to the CML working group and was included in the CML submission to the Miles Review team, Bristol & West retain an independent perspective on the Miles report.
Key views
The market is basically working well
Bristol & West agrees with Professor Miles view that the market is basically working well although “some features of the market are not working as well as they should”. There is always room for improvement, in any industry.
Deep discounts essential for first time buyers
We differ in respect of the proposals for reform. We feel that deep discounts, rather than being harmful to the market, are essential for first time buyers to get on the housing ladder. If the housing supply improves this may ease, but will not happen in the short term.
Capped rate mortgages
The report makes little reference to capped rate mortgages. First introduced to the market by Bristol & West, capped rates are likely to be more appealing to many borrowers as they offer the benefits of a low discount rate together with the security of a fixed rate. We do recognise that the macro economic benefits desired by the Treasury may differ for capped rates than for fixed rate mortgages.
Five years is a long term mortgage
We welcome Miles’ acceptance that 10, rather than 25 years, represents a long-term mortgage. However we feel that this should be reduced to 5 years, which is regarded by many economists as a typical economic cycle. This would mean borrowers would have less of an issue with redemption charges, whilst it would also significantly reduce the risk management and pricing challenges that lenders face with a long term fixed mortgage.
Negative effects on the economy
We respect Professor Miles view that macro economic benefits would arise from increasing the proportion of fixed rate mortgage loans, but we feel the reduced responsiveness of the economy to base rate moves might well have negative effects. The MPC would need to increase base rate by a larger amount to achieve a tightening of monetary policy. This would have implications for the exchange rate, and industries sensitive to exchange rate movements. It would also have negative consequences for the economy as a whole, since UK business tends to rely on short-term finance.
Weaknesses in basic education
We agree that the majority of borrowers place less emphasis on the longer-term costs of mortgages, but for many first time buyers, they have little choice in the current climate – high house prices and an upward sloping yield curve. The report does make a significant point in respect of weaknesses in basic education - this has serious implications for the UK economy. There is a strong correlation between educational achievement and long term economic growth.
Finally
Bristol & West Mortgages actively promote five year mortgages, which we regard as long term. There may be an optimal mix of fixed and floating rate mortgages but we feel it is for the individual customer to decide what is best for them. Bristol & West Mortgages has a strong record in product innovation, and in reducing customer exposure to adverse moves in interest rates. Bristol & West was the first high street mortgage lender to introduce capped mortgages, followed by the first cascade mortgage. We hope that Professor Miles’ final Report will leave room for further product innovation in the UK mortgage market.
