Theories abound as to where the housing boom and subsequent affordability issues have come from, and the reasons for their existence.
Some lay the blame squarely at the feet of prosperous buy-to-let investors competing with struggling first-time buyers for the same type of property. With the situation escalating, Chancellor of the Exchequer, Alistair Darling, has waded into the argument.
The focus of his ire? Mortgage lenders apparently fuelling an ‘unsustainable’ boom in property prices.
Questioning methods
Speaking in an interview with the Daily Mail, Darling questioned lenders’ methods of assessing borrowers’ ability to afford loans. He said lenders must ask ‘more searching questions’ to prevent borrowers taking on too big a loan, and stated: “Lenders need to be clear that somebody can afford to meet the repayments, whatever they are, and be sure that they haven’t overstretched themselves.”
He added: “Unsustainable house price inflation is not good for individuals; it is not good for the economy.”
Rebuking accusations
Naturally, lenders have not taken this accusation lightly. Rebuking the claims on Radio Four’s Moneybox, Michael Coogan, director-general at the Council of Mortgage Lenders (CML), slammed the Chancellor’s assertions as ‘simply wrong’.
He said: “It reflects someone who’s got a view that is behind the times and off the pace. It was his predecessor who was encouraging lenders to increase home ownership opportunity – a million extra home owners in the last 10 years – and set a target for that to be repeated in the next few years.”
He went on to say that the Chancellor’s comments were ‘misjudged’, and commented: “We’ve seen in recent times an increase in the number of cases being turned down and a 40 per cent reduction in the products available in the market. It’s not the case that lenders are irresponsible. It’s the case they’ve responded to the global liquidity problems we’ve seen.”
As Linda Will, outgoing managing director of Accord Mortgages, points out, affordability is an issue all lenders take seriously and have done so even before mortgage regulation was introduced three years ago. She says: “It’s not in any lenders’ interest to end up with a repossession. People have been looking at affordability. The real issue is the massive amount of unsecured debt, as getting secured debt is easier, but it’s not that easy.
“Lenders are in a lose-lose situation. It wasn’t so long ago that lenders were accused of not helping first-time buyers. The Chancellor has got to get his act together; he can’t have it both ways.”
Start with the regulator
Certainly, Julie Gaskin, corporate relations manager at GMAC-RFC, believes to blame lenders is erroneous, when lenders have to abide by the regulations and guidelines set down by the Financial Services Authority.
She says: “If the Chancellor has got issues, he’s got to start with the regulator. There are reports that lenders are lending certain types of multiples and, like with anything, there is a bad egg that is always reported. But many lenders have different ways of lending. No lender wants repossession. If the property is still in a good condition, then there might be a shortfall and it’s very hard to get back. It’s a lose-lose situation. There’s no reason any lender would want to lend silly amounts. There needs to be an emphasis on borrower responsibility to give true, accurate information.”
Indeed, Will comments that lenders are the only target the government can really go for. “The Chancellor has been well and truly bloodied and the government is feeling a chill wind. If it hits the Treasury, it hits itself. If it goes for the regulator, it’s the body it set up, and so it has to gun for the commercial institutions.
“To put the blame on the lenders is absolute garbage and simply not true. It’s very easy to pick people out as scapegoats, but it’s classic economics that determines price, with the lack of availability and increasing demand. It’s disingenuous to point the finger at lenders.”
Finger pointing
For Gaskin, the question of determining house prices lies with lenders’ expertise, as they rely on the advice of the qualified chartered surveyors or automated valuations that are performed during risk analysis. She says: “How can we be the ones pushing up prices? We are going by specialists in the field.”
Yet, this pointing of fingers leaves Gaskin cold. She explains: “The Chancellor should attend a CML meeting and speak to people in the business and find out their views. We need to work together rather than fight among ourselves because it’s not helping the confidence in the market.”
Of course, the blame game is one that will continue to be played by all and sundry trying to find a way of justifying the problems at hand. What is clear is that for such a large issue as housing, no one person or body can be fully blamed for the current scenario. Prudent lending is on every lender’s radar, with the credit crunch still hitting the market. What needs to be focused on is finding ways to maintain consumer and the market confidence, rather than denting it further.
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