FSA intervenes on mortgages arrears

For article see http://news.bbc.co.uk/1/hi/business/8480073.stm. Reading between the lines the FSA has made it clear that its rules on lender's behaviour around mortgage arrears are not fit for purpose. One must ask what the FSA has been doing since its intervention into the Mortgage market.

Given the failure of regulators in general, but the FSA in particular, to foresee events over the last 2 years and either to prevent or reduce the impact of unnecessary risk taking, this latest admission must be seen as a final straw in the FSA's ability to create a proper regulatory environment in which to transact mortgage business. With an impending election it is unlikely that this requirement to regulate on the FSA will be changed but it is likely that the FSA will be challenged post-election to demonstrate that it adds value. Whether this is possible is a matter of how they respond to the concerns in the mortgage market. Based on past record one must question whether this will happen.

Lender's like any other business have to ensure that they are profitable, whilst balancing with issues such as reputation and their regulatory requirements. Working with the principles of Treating Customer Fairly has always been difficult because of their vagueness. On the other hand, because of the lack of flexibility, black letter rules can fail to provide effective rules in individual circumstances.

Where next? A full re-write of the Mortgage: Conduct of Business together with the associated cost to lenders? The market already reeling from the failure of appropriate regulation to then be hit by tighter rules reducing the ability for lenders to assist the economy in recovery.

We suggest that before making knee-jerk statements of the kind released today a full consultation is carried out, with lenders and consumer bodies, that ensures that the rules produced create a market where risk levels are acceptable, find the right balance between the lender's commercial needs and the borrowers rights, and appropriate sanctions against lenders for non-compliance.

Time to fix your mortgage rates?

Inflation is back, bringing with it the prospect of enforced interest rate rises rather sooner than policymakers would wish.

The Inflation Indices for December released today showed the highest monthly increase since the 1970s. In response, gilt yields have risen sharply and so too has the pound. Many economists had predicted a big surge in inflation for December because in the same month the year before there had been a number of one off factors which had acted as a depressing influence on the indices, including the cut in the rate of VAT to 15 per cent. But the surge to 2.9% was not anticipated

The reversal of the VAT rate has not yet been factored into the indices, this will impact in Januarys figures with the result that it is more than likely that the inflation rate for January will substantially breach the 3 per cent level at which the Governor of the Bank of England is forced to write a formal letter to the Chancellor explaining why inflation is so far adrift from target.
This time last year many economists were predicting a second Great Depression, house price falls of 40% + , years of stagflation or deflation. 12 months down the line the economic experts have proved to have exaggerated considerably to the downside; house prices rose in 2009, the financial markets are still standing, unemployment has not ballooned, and inflation no deflation is our current concern.

The GDP figures for Q4 2009 are due for release on 26th January and if predictions are correct are likely to show that we are at long last out of recession and on the road to recovery. Prices are racing ahead as if the economy is again operating at full tilt.

The markets are now confidently pricing in a rise in Bank rate for later this year. There are some economists predicting rate rises before the general election.

With all this in mind, and also taking on board recent SVR rate rises by lenders the statistics are pointing towards fixed mortgage rates having reached their bottom and mortgage rate rises being just around the corner. Fixed Rates have become unfashionable recently with many opting for headline low tracker rates. But is it now prudent to lock into these historically low fixed rate mortgage products before the market shifts upwards as it inevitably will.

It is the brave borrower who is prepared to continue the wait and see policy on mortgage interest rates and those that leave it too long could be caught short.