City regulators attacked for triggering 'mortgage famine'

(Bloomberg)

Homebuilder Redrow yesterday launched a furious broadside against regulators accusing them of creating a "mortgage famine" on the same day that the Council of Mortgage Lenders (CML) urged the city watchdog to "think again" over tough new rules that its latest research says would prevent 150,000 people from being able to buy or move house in the coming months.

Amid a growing backlash against the Financial Services Authority's (FSA) uncompromising stance, Steve Morgan, chairman of Redrow, used the company's annual meeting to warn that its medicine "risks killing the patient". "Our message to the Government is simple: the regulators are going too far," said Mr Morgan. "Deliberately suppressing housing demand at the very time that the country has a chronic housing shortage is laying the foundations for the next boom/bust cycle."

Speaking afterwards, Mr Morgan, a housebuilder for nearly 30 years, said he had never known a mortgage market that was "as bad as this". "We are not asking for irresponsible lending and I don't think the regulator means to pull apart the housing market. But the effect of what they are proposing will be that that is exactly what will happen," he added.

Redrow was running at 50 per cent capacity, he said, and was having to turn people away because they could not get mortgages. He said he himself took out a 95 per cent mortgage to buy his first home, as did his son. But, he continued: "In the last three years the number of mortgage products available to buyers with deposits of 5 per cent or less has fallen from 1,224 to just 33. The situation could get a whole lot worse if the FSA's proposed changes in its Mortgage Market Review come to fruition."

The CML published two independent reports yesterday which backed up its own industry findings – by economic research consultancy Oxera and economic and social research consultancy Policis. CML boss Michael Coogan called for more direction for ministers and for the FSA to consult again on new regulations as part of the Mortgage Market Review.

He called for ministers to allow "free access to the market to responsible borrowers" while "establishing an effective safety net for the few who have difficulties due to changes in their lives. This is not the approach which the FSA has taken due to its limited focus on its conduct risk strategy." The CML says millions of "performing" mortgages allowed over the last five years would be banned now under the FSA crackdown.

While Halifax yesterday said house prices actually rose 1.9 per cent month on month in September, bucking the trend of recent figures, they still fell 1.2 per cent over the three months to end September and Halfiax said the trend was downward.

However, the FSA said: "We think that much of what we are proposing is consistent with how lenders themselves have already tightened up their procedures ... No doubt this is why our proposals have been characterised by a number of firms as simply marking a return to 'sensible underwriting' and common sense. We continue to welcome and review all feedback we receive and we have already indicated we will not rush into change without fully assessing the impact of our proposals on the mortgage market."