CML Director General Paul Smee's speech on 'Road to Mortgage Nirvana'

Friday, 4 November 2011 9:17 AM

Market forces and the government can both act as a catalyst to break the stalemate in the mortgage market and help to encourage conditions that are conducive to housing market sustainability, according to Council of Mortgage Lenders director general Paul Smee, speaking today at the lending industry's annual conference.

While there are a number of obstacles on the "road to Nirvana" - regulation and negative sentiment among them - better market conditions are attainable with effort, Mr Smee said. But to achieve them requires joined-up thinking on the part of regulators, government, and industry alike.

Mr Smee warned against the danger of self-reinforcing gloom, remarking that current sentiment echoed that of the 1970s, which was then followed by the high-growth economy of the 1980s: "so the wheel will turn".

He also suggested that caution is needed in terms of seeing housing market success as measured only by ease of access to home-ownership: "Our assumption of a stable market must embrace all forms of tenure", he said.

Crucially, regulation needs to be not only proportionate, but also joined up, if it is not to be the most significant obstacle of all. The post-FSA regulatory landscape for mortgages is going to become more complex under the "twin peaks" of the PRA and FCA, but there will also be a new influence in the form of the Financial Policy Committee, part of whose remit will be to prevent asset bubbles. Mr Smee reflected:

"Its remit is still opaque... Will it actually wield the instruments of deflation? Will those instruments be blunderbusses, scattering grape-shot; or finely-tuned lasers? We do not know but I cannot help but observe that every time the FPC talks of its mandate it uses the example of mortgages as the market where it could see itself making an impact. So we need to know the terms of engagement..."

"...Regulators can exist in their own bubble with their own policy objectives. So regulators will cheerfully propose significantly tougher capital requirements for mortgage lending; and other regulators will equally cheerfully impose tougher selling requirements. Each, by their own lights, will be behaving entirely reasonably. Meanwhile, in another part of the forest, a third body - let us call it the government - is seeing a revival in the housing market as a key part of its recovery strategy. A market which is part of the engine for growth may find its capacity to respond hampered if the weight of regulation is disproportionate. And the different parts of the regulatory forest need to be in contact with each other so that they can assess across the piece the effects of their cumulative demands."

Government does, however, have the capacity to act as a "real catalyst for good", said Mr Smee. While it can be an obstacle if its policies confuse or divert the market and act as a brake on action while everyone waits for clarification or legislation, this need not be the case if it chooses to define its role differently:

"If Government wishes to be a designer, driver and implementer of a solution, then I fear that its chances of success will diminish and fail. If it defines its role as being a catalyst, a prodder and pusher of others, then it can maximise its impact. I have seen this in several markets; I do not think that housing is different."

NOTES TO EDITORS

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion.
2. A full copy of Paul Smee's speech is available here.

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