Mortgage Lenders and the FCA and Why Lenders Got Things So Wrong in The Past

LettingFocus looks at mortgage lenders and the FCA – and shows why lenders got things so wrong in the past.

If you have read my past blogs you will know of the “class action” shortly to commence against West Bromwich Building Society (WBBS) who have broken their contract with buy to let mortgage borrowers and reneged on some of their old mortgage deals which had stated that their borrowers would only pay a small fixed margin over Bank of England base rate for the period of the remaining terms of their mortgages.

In response, the chocolate teapot of the regulator, the Financial Conduct Authority (FCA), under their boss Martin Wheatley, recently has put out a consultation asking interested parties (like borrowers) if they think that tearing up a contract is “OK”.

Mortgage Lenders Got Things Wrong In the Past

Imagine the FCA asking lenders if it is OK with them if their borrowers were to pay a lower rate of interest on their loans or just default. Not likely is it? Aand this kind of crazy intervention does the FCA no credit and makes observers willing to believe more than ever, that the FCA is simply a tool of the financial services industry.

Why banks and building societies want to get out of these loans is because it is costing them a lot of money. The likes of WBBS raised much of the money for these past loans by borrowing on money markets only over a short term period and then lending long (up to 25 years) on the mortgages they issued. Lots of lenders did this – and more fool them. Cheap money at say 0.3% over base was plentiful then. But cheap money market funds died when the credit crunch hit in 2008 – and is not coming back for a long, long time.

Other lenders, like Paragon, for example, did not borrow in this way – which is why they were historically often more expensive (and why I never had any loans with them) and why they always targeted, and did well in, higher profit niche areas like HMOs.

Of course, it is stupid that lenders like WBBS and others trusted that cheap money was always going to be available for ever. (It is not as if there had never been a credit crunch before!)

But as pained consumers we have seen more than enough idiocy from banks to last us for the rest of our lives. (My own favourite bit of lunacy was the Icelandic banks whose activities in money markets made Iceland one of the largest states by capital value of its banks’ loans, even though Iceland has less than a million people).

Dumb banking was allowed to happen all around the world because the regulators have been weak and simply didn’t really know what was going on until it was too late. And the regulators have been forever playing “catch up”.

Meanwhile, our representatives in parliament remained generally clueless and were happy generic viagra new zealand just as long as the gravy train of cheap alchemy money dreamt up by the merchant banks continued to be created using new “creative” synthetic structures. Financial journalists, too, were then and still are, shut out of the magic, closed shop old boy network of the City and Wall Street and too often, simply accepted the glib answers they were given as to how all the cheap cash was being created.

Nothing has changed.

As an example, just last week, the FCA alerted banks and other lenders to the fact that tougher MMR rules may encourage people seeking home loans to “game” lenders and apply under buy to let mortgages instead, even though the borrowers have no intention of letting.

But this story has been in the news for months and is just another example of how the FCA is still so woefully “chasing the game”. As my old teacher used to say, “Oh, do please keep up at the back!”

 

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