The Council of Mortgage Lenders is the trade association of mortgage lenders which are responsible for 94% of UK residential mortgages. Mortgage lenders represented range from the biggest names such as HSBC and Barclays to the smallest of building societies. There are currently 11.4 million homes with a mortgage in the UK, and 94% of these are issued by the 109 members of the CML.
The Council of Mortgage Lenders is seen as the reputable and responsible voice of the mortgage industry, and is the central provider of mortgage statistics and research into the industry. It confers with the UK government and the E.U. yet remains under the auspices of the Financial Services Authority, which is responsible for much of the stricter regulations which have come into play.
Currently the mortgage industry is operating under far stricter guidelines than previously and has openly expressed its concerns that too much intrusion by a risk averse regulator will discourage lenders. The CML has said that “new conduct rules for mortgage lenders will not help borrowers meet their aspirations to become home owners.” It takes the view that responsible borrowing is as much of a key concept as responsible lending, and feels its members should be able to make their own risk judgements.
If one considers the last several decades of mortgage lending in the UK the CML has overseen two boom and bust cycles, and changes have been made in products offered which have been high risk for consumers. Mortgage lenders were responsible for issuing 100% mortgages, but to nowhere near the extent which they were offered in the US, where 50% of all subprime lending comprised 100% mortgages.
In order to facilitate first time buyers to get onto the property ladder mortgage terms have been extended from the traditional 25 years up to 40, potentially leaving a generation of pensioners still paying mortgages.
Loans have been issued which were clearly not affordable to borrowers who ended up with negative equity after chasing ever increasing prices with high loan to value mortgages and salary multiples which were simply not viable. In the run up to 2007 a high percentage of mortgages were issued as interest only, with often no proof needed of a viable repayment vehicle to run alongside the mortgage. These have now been dramatically scaled back as members believe they will soon be made responsible for policing mortgage holders to have a policy in place to pay off their mortgage at the end of the term.
Lessons were not learnt by mortgage providers from the boom and bust of the late 1980’s who should surely remember the days when mortgage interest rates peaked at 15%, and advise current borrowers of the potential of extreme interest rate rises on affordability. The previous bust saw homeowners who were paper rich due to steep house price increases borrowing against their home equity, only to see it fall down, leading to arrears and repossessions: yet the same scenario is allowed to be repeated.
Whilst the CML has valid concerns about over regulation, which has currently resulted in the almost impossible situation first time buyers face of obtaining mortgages without 30% deposits, it clearly needed some kind of regulation. Unless it can fight its own corner now it is apparent that mortgage activity will continue to drop and reducing total mortgage debt will become the market priority, which will benefit neither future homeowners nor private investors providing rental properties.