Regulator holding back mortgage market
Speaking at the Mortgage Business Expo in London today, housing economist John Wriglesworth said lenders aren’t lending at higher loan-to-values (LTVs) because they’re “scared to death” of the FSA.
“It’s not the lenders fault that they’re not lending to help the recovery of the market. It is the regulators, totally, utterly, 100% them at fault for going too far overreacting to what happened in 2007-8 and preventing the restoration of the housing market.”
He also claimed that credit criteria and capital adequacy requirements have become ‘bizarrely draconian’.
“Capital adequacy requirements are far too onerous. In Basel II, everyone was expecting the weights on mortgages to reduce to allow more lending, and so therefore lenders didn’t have to put so much away when they lent to a person.
“Everyone was expecting mortgage lending to be more buoyant as a result of Basel II. But because of this credit crunch and fear from regulators about the consequences of it, banks can’t afford to lend properly to first-time buyers as they have to put so much capital away for loans at higher loan-to-values.”
Wriglesworth added that he believes in five years’ time capital adequacy regimes and loan-to-value ratios will go back to normal.
“I don’t believe we will get a normal mortgage market unless we get sub-prime lending back as a normal part of our life in the industry. Without 100% mortgages, this market will not recover in my view.”
Government initiatives are only helping the market to a certain extent, Wriglesworth told delegates at the Expo.
He said the government’s quantitative easing programme is seeing money go into bank vaults and not into lending, as banks have to keep it for capital adequacy purposes.
“Stamp Duty holiday should have been extended. Shared ownership and Homebuy are great measures but it may be too little too late.”