How would you define ‘froth’? One of the definitions I’ve found refers to froth as ‘worthless or insubstantial talk, ideas or activities’. Let’s keep that definition in mind when we refer to the recent comments by Linda Woodall, FCA director of mortgages and consumer lending at the FCA, who said, “I think the MMR will take the froth off the market but I do not think the MMR will be the cause of a fall in mortgage lending.”
Am I the only one who finds this an incredibly odd statement to make? Firstly, the suggestion that the mortgage market is ‘frothy’ – presumably Linda believes that there has therefore been some ‘worthless or insubstantial…activit(y)’ in the recent past. Really? The regulator believes there has been mortgage activity taking place which shouldn’t be? Is this activity non-compliant? I suspect not. But what the regulator is effectively saying is that up until this point individuals (who the FCA believe shouldn’t be securing mortgage finance) have been able to get mortgages.
The MMR is designed to stop this however to my mind it has come at a wholly inconvenient time for the mortgage and housing market. Let’s consider the two forces at work here. Firstly, let’s be frank, the mortgage and housing market could still be said to be bumping along the bottom probably up until the middle of 2013. The Coalition Government certainly recognised this which is why Funding for Lending was introduced and Help to Buy was announced in last year’s Budget. It recognised that serious State intervention was needed if the housing market was to get going again and I think we can say that decision has been vindicated.
The housing and mortgage market has improved significantly over the past 12 months however this improvement has come off a low base. Even with all the Government support and a much more benign economic environment to lend within last year gross mortgage lending still barely reached £180bn. The anticipation for 2014 was better but still not considerably so – at the start of the year most commentators thought we would breach £200bn but not by much – I wonder what the thinking is on lending levels now?
In effect, we have had a housing/mortgage market which has done very little for the best part of five years and now over the last 12 months it has shown signs of life and improvement. Despite all the focus on potential house price bubbles and the London market in particular, I would never call this a ‘frothy’ market – ask estate agents in many areas of the country and I’m sure they would agree. They will probably also point to improvement but I suspect they would say it’s some way short of ‘normal’ and far from ‘frothy’.
To my mind this is a market which continues to improve but is far from back to full health and we now have the MMR which, despite the FCA protestations, is undoubtedly going to impact negatively on the market’s recovery. I am going to respectfully disagree with Linda Woodall and suggest lending levels are falling – given that most lenders have introduced MMR measures early – and not only is the mortgage process going to be longer, but fewer borrowers will be successful and the market will suffer as a result. We already know that most lenders are cutting back on their daily run rates – indeed have been for some time – as they ensure their systems can cope with the changes and they don’t fall foul of the new rules. Therefore how the regulator can say that lending levels won’t fall is a mystery.
My worry is that the MMR is not going to take away ‘froth’ – because there is no froth – it’s actually going to take away a sizeable chunk of what’s tangibly underneath. It’s making the process of securing a mortgage much harder and the impact of this could be considerable. Many have suggested this will be a short-term/three-month blip but I suspect there could be more of a medium-term impact – the beneficiaries of this approach could well be intermediaries (if they can get their clients a mortgage) and sectors like buy-to-let however the wider mainstream market will suffer. What was introduced with the best intentions post-Credit Crunch in order to curb the excesses of the past could actually stifle a market which was working well and beginning to show signs of recovery. Frothy doesn’t even come close.
Harpal Singh is managing director of BrokerConveyancing.co.uk
