Lenders call for mortgage rules rethink as market misfires

(Jason Alden/Bloomberg)

Mortgage lenders begged ministers to intervene to prevent the financial watchdog pushing ahead with its crackdown on irresponsible lending, as Persimmon became the latest housebuilder to warn that the property market was in a fragile state.

In its response to the Financial Services Authority's consultation paper, the Council of Mortgage Lenders condemned the "flawed" approach of the watchdog. It said the FSA had failed to take into account the correction in house prices that had already occurred, the impact of the new requirements on companies' capital and liquidity levels, and consumer behaviour.

Michael Coogan, the CML's director-general, said that while he accepted that regulatory change could lead to a better market in the long term, the FSA's proposals would "do more harm than good". He "strongly urged" the FSA and relevant ministers to weigh up all the evidence before proceeding.

Mr Coogan said: "If implemented as drafted, these rules would likely have the effect of creating significant financial exclusion among perfectly creditworthy borrowers. In turn, this has wider consequences for housing and wider society, and would exacerbate the generational wealth divide that already exists.

"We urgently need a proper public policy debate on how housing finance can help the Government deliver its housing policy, and to review whether the risk-averse approach which the FSA has adopted would serve mortgage borrowers or undermine their reasonable aspirations to become home owners."

Last month, the CML produced an earlier study which warned that about half of the 8 million mortgages approved in the past five years would have been banned under the tougher affordability rules proposed by the FSA.

Alongside an update for the period from 1 July to 15 November, Mike Farley, the chief executive of Persimmon, added his support to the CML's concerns, saying the mortgage market had already "self-regulated" itself.

"The horse has already bolted," he added. "The checks that are taking place are quite comprehensive. It is in no one's interests to see people over-borrowing. Gone are the days when you could buy a mortgage online for 125 per cent loan-to-value. I do not think it is necessary to tighten any further."

Mr Farley also warned that a lack of available mortgages remained a "major obstacle" to potential buyers. Persimmon said it "did not experience the normal autumn increase in visitor levels and reservations", although weekly sales grew gradually in September. More specifically, reservations fell by about 15 per cent between 1 September and the Government's Comprehensive Spending Review on 20 October, but had "picked up since then".

Persimmon's comments follow those of Steve Morgan, chairman of the rival housebuilder Redrow, who said earlier this month that "as a direct consequence of this worsening mortgage famine, the average age of an unassisted first-time buyer is now 37 and rising". According to the Halifax index, house prices rose by 1.8 per cent in October, but they are down by 1.2 per cent over the last three months.

Mr Farley said: "We are seeing very stable prices." Persimmon said that current trading was in line with expectations and reaffirmed that it expected to double its operating margin to about 8 per cent for the year to 31 December. The company added that it was on track to complete about 9,400 homes during the period, 5 per cent more than it did in the same months last year.