From: www.pressandjournal.co.uk
Head of City watchdog moves to allay fears of property market meltdown.
MORTGAGE arrears and repossessions could be at a lower level in this recession than in the 1990s slump, the City watchdog said last week, as lenders warned against tighter regulation.
Financial Services Authority (FSA) chairman Lord Turner said some homeowners had benefited from lower interest rates as he presented a discussion on the future governance of the mortgage market.
Concerns were raised that some parts of society would not be able to borrow to buy a home in the future if access to loans worth a high percentage of a property’s value was curtailed.
The FSA itself came under fire from lenders, who said there was a lack of trust between the watchdog and those it regulated.
The FSA, which is reviewing the mortgage market as part of the Turner Review into the future shape of regulation, is considering the possibility of prohibiting certain products, such as 100% mortgages.
Lord Turner said he made no apologies for not knowing what further regulation, if any, would be included in the report, due to be published in September.
He said while falling house prices could shift many people into negative equity and rising unemployment would produce increases in arrears and defaults, “compared to the early 1990s, we are less likely to see mortgage repayment problems among the vast majority of people who, even under the most extreme forecasts for unemployment, will still be in a job”.
Industry representatives spoke out against tighter regulation on borrowing limits. Jackie Bennett, of the Council of Mortgage Lenders, said a product ban was too blunt an instrument and would not achieve its objective.
Lord Turner said the rapid expansion of mortgage lending in the UK was a key factor in triggering the financial crisis, and the high loan-to-value ratios and loan-to-income ratios advanced could have played an important role in the problems.
Chris Cummings, director general of the Association of Mortgage Intermediaries, said the state had a part to play in the crisis by encouraging people “to become the property-owning democracy”. He added that the future would be very different for many would-be homeowners, with about a quarter of mortgages now requiring a deposit or equity stake of at least 40%, and just four deals available for people wanting to borrow 95% of their home’s value.
Peter Vicary-Smith, of the Which? consumer group, said 90% mortgages were a vital component of the market and should be again opened up to those customers with the financial ability to meet the repayments.
He said that, while consumers did have a certain level of responsibility over the amount of debt they ran up, it was up to lenders to check they were offering the right deals to individuals.
Meanwhile, City Minister Lord Myners, responding to concerns that state-backed banks were charging punitive rates to customers, despite a low base rate, said increased competition was the most effective way to ensure customers were treated fairly.
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