Michael Coogan outlines CML market view to Parliamentary group

Speaking this morning at a Debt and Personal Finance All Party Parliamentary Group meeting, CML director general Michael Coogan echoed Mervyn King's comments to the Treasury Select Committee yesterday, when he emphasised that the Bank of England's special liquidity scheme is designed to improve liquidity in the banking system, not to support the housing market.

Mr Coogan observed:

"If it is used widely, as I expect it to be, and extends to over £50 billion in asset swaps by banks and building societies, we think that some of that money will be recycled responsibly into the mortgage market.  However, it was not the Bank's main intention or aim. This possible outcome of recycled funds is also uncertain in terms of scale and timing."

Turning to look at which mortgage borrowers are most affected by the credit crunch, Mr Coogan said:

"All borrowers will be affected in some way over time.  In the short term, and contrary to popular belief, customers coming out of fixed rates in 2007 and 2008 appear to be managing the adjustment well so far...For some borrowers coming off fixed rates, higher payments will be affordable because their salaries have continued to go up.  For others, the option of extending their mortgage term, switching from a repayment to an interest-only loan, or a short-term payment holiday may be an option if they have good payment histories."

Mr Coogan explained that lenders are under a general obligation to follow the Financial Services Authority's Mortgage Conduct of Business rules, which require them to treat customers fairly and take possession as the last resort. But he also said that concepts of fairness themselves have to be tailored, as some borrowers "can't pay" and others "won't pay".

He added:

"Those who pay despite it being stretching should not have to subsidise those who don't."

Arrears and possession rates are running below current CML forecasts for 2008, and the CML is tracking them closely. The CML's current forecast is for a repossession rate of 0.38% this year (45,000 repossessions) but this forecast will be reviewed and potentially updated when arrears and possessions numbers for the first half of the year are published in early August.

For borrowers who suffer an unforeseen change in circumstances, the very limited state support available through Income Support for Mortgage Interest "simply fails in its public policy objective" and "needs urgent reform", said Mr Coogan, adding:

"I hope that within the next few weeks we will have a clear statement of the government's intention for reform to help lower income borrowers who need short term help."

In conclusion, Mr Coogan said that over time the mortgage market should benefit indirectly from the Bank of England's liquidity scheme, but that:

"What we will not have is a return to some of the products which have been in the market in recent years, and some of the low mortgage pricing which we have seen due to the effects of competition in the UK market in past years."