Wednesday, December 3, 2008

Mortgage rationing

From the Daily Wail comes the sort of story that they love at the moment - a speech from the Council of Mortgage Lenders about the current state of the mortgage market - "in an explosive speech" etc etc etc

'Dysfunctional' market: Michael Coogan says the government must act now or mortgage rationing will get worse next year
Mortgages are having to be 'rationed' and the situation will get even worse next year, the Council of Mortgage Lenders has warned.
In an explosive speech, director general Michael Coogan said that the 11.7million with a mortgage are being forced to cope with a 'dysfunctional' market.
In a reference to the struggle of millions of homeowners to get a loan, he said: 'We have, in effect, returned to mortgage rationing.'
He also said the Government's £37billion banking bailout was not enough to stop the crisis.
He accused the Government, the Bank of England the Financial Services Authority of making 'piecemeal, self-interested decisions'.
Mr Coogan added: 'Unless Government takes further targeted action to help market participants, we will see a worsening picture next year compared with this.'
If they want to solve the crisis, he said, there needed to be a better Government guarantee to encourage lending between banks.
The CML expects a paltry amount of net lending this year of just £40billion, a fraction of the £108billion handed out last year.
His comments came amid a growing storm over controversial but little-known clauses in many homeowners' tracker mortgages, known as 'collars'.
These stop the mortgage falling below a certain rate.

Around 10 per cent of the market have these and may not benefit if the Bank of England slashes the base rate again on Thursday.
But speaking at the CML's conference, a director of the City watchdog said lenders may not be able to enforce these collars because they could be 'unfair.'
Unless the existence of the collar was made sufficiently clear to the borrower when they took out the mortgage, the lender may not be able to enforce it.

Dreams shattered: Millions of people will now struggle to get a home loan
Jon Pain, managing director of retail markets at the Financial Services Authority, said the collar should have been mentioned in the Key Facts Illustration (KFI) given to all customers.
This contains the crucial information about the loan which they are about to take out, and is meant to spare them from trawling through all the terms and conditions.
Mr Pain said: 'If it is not [in the KFI], you run the real risk of both breaching our disclosure requirements and having an unfair contract term you can't enforce.
'I am well aware of potential systemic risk some lenders face in a very low interest rate environment.
'But the solution cannot be to introduce contract terms that don't exist or are unenforceable.'
Yesterday lender Nationwide said its collar, which means it stops tracking the base rate at 2.75 per cent, has always been in its KFI sent to all its borrowers.
Halifax, meanwhile, admitted yesterday that it removed any reference to its collar from the KFI in 2005, although it was still mentioned in its terms and conditions.
This could mean the embattled bank is not allowed to enforce its collar, a victory for homeowners but a costly disaster for the bank.
Under its rules, if the Bank's base rate goes below 3 per cent, Halifax reserves the right to change the tracker margin.
A bank spokesman said it is currently looking into the matter.

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