My Lords, the Financial Services Authority is engaged in a review of mortgage regulation, the Mortgage Market Review. The Responsible Lending consultation paper published in July, which looked at proposals on assessing affordability, forms one part of this ongoing consultation. The Government will continue to work with the Financial Services Authority, mortgage lenders, intermediaries and consumer groups to ensure a mortgage market that is sustainable for all participants.
Is my noble friend aware that mortgage lending is at a 10-year low? The main reason seems to be that, on the one hand, the lenders—that is, the building societies and the banks—are saying that they require a 25 per cent deposit and that they have to waive certain supplementary income, while, on the other hand, the FSA is saying that it has not prescribed a 25 per cent deposit but is imposing tough new proposals. Will my noble friend bring together these two parties so that couples who want to buy a modest house of, say, up to £200,000 in value, but who cannot possibly find £50,000—which is the 25 per cent requirement—are asked to put forward a 10 to 15 per cent deposit?
My Lords, the level of new gross lending in the mortgage market is above levels seen throughout the 1990s, but, inevitably in this part of the economic cycle, it is low, as my noble friend said. Although loan-to-value thresholds are taken into account by the FSA for prudential purposes, they are not hard limits. The FSA says in its recent consultation paper that no case has been made for LTV caps on consumer protection grounds, and the FSA is not proposing to impose a maximum LTV cap. I note from just scanning mortgage products available on the internet this morning that there is still a range—admittedly a reduced range—of products with 80 per cent and 90 per cent LTV available.
My Lords, will the Government keep in mind that the affordability criteria are important given that in the past three years more than 40 per cent of mortgages have been approved without proof of income? Will they accept that further checks and balances are needed in the mortgage market to protect consumers from mis-selling, and also to prevent another reckless housing boom?
My Lords, I certainly agree with the noble Lord that questions of affordability should be addressed, which is why the FSA is carrying out the consultation. The consultation is due to close shortly and forms an important part of the FSA’s ongoing work to ensure a sustainable mortgage market for the medium term.
My Lords, I am sure that I misheard the Minister, but he seemed to imply that it was inevitable that mortgage lending is so low at this stage of the cycle. There is nothing inevitable about it. The fact is that the banks are not lending as they should and they are demanding 30 per cent and 40 per cent deposits from people with good prospects. What does the Minister think is a fair deposit for a bank to ask a creditworthy borrower to put down to get a fair and affordable interest rate? The banks are not doing it at the moment.
My Lords, it is certainly not for government to make judgments about the right terms on which mortgages should be advanced by individual banks. There is a rebalancing going on from an excessive household leverage which built up in the past decade. There is also a necessity for the banks to price all their products, including mortgage products, at an appropriate margin, because it was quite clear that they were extending a whole range of credit products, including mortgages, at submarket rates before the crisis. The Government’s interest is to make sure that we have a sustainable balance, which means that people, including first-time buyers, can get mortgages on appropriate terms, but also that it is sustainable and does not lead to another bubble. We are following very keenly the work of the FSA in this regard.
My Lords, as the noble Lord, Lord Naseby, said, many prospective owner-occupiers are unable to afford a deposit and will therefore linger for a decade or more in the private rented sector, therefore increasing the demand and rents in that sector. The Government’s policy is to cut housing benefit to reduce private sector rents, but that cannot and will not happen. Instead, will it not increase the misery for thousands of people?
My Lords, I do not accept the premise that there will be a raft of people somehow prevented from getting on the mortgage ladder for a decade. I have no idea what the basis is for that rather broad and sweeping assumption. The Government are ensuring that we keep interest rates low and that the banks can access the funds they need to underpin a good flow of mortgage lending, as well as other lending, particularly to SMEs. It is for the FSA in that context to ensure that the affordability criteria are appropriate. In particular, we have extended the support for mortgage interest by a further year to January 2012.