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The highs, the lows - and why I'm stepping down


Published: 27 July 2011 | Author: Bernard Clarke

It is said that 'an Englishman’s home is his castle', and the dream of owning one's own home has been at the centre of consumer aspiration from the early days of building societies in the 19th century. As I look forward to the end of my career at the Council of Mortgage Lenders later this week, I want to reflect in this article on some of the highs and lows, particularly in my period as director general of the CML, which has spanned an economic cycle – the last 14 years.

It has been a privilege to serve an industry that has helped different generations of home-owners on to the housing ladder, provided financial support for different tenures delivering housing choice, and helped to instil freedom, security and a sense of community throughout the UK.

The journey has not always been straightforward. Indeed, it has been a roller-coaster at times. 

Nevertheless, through thick and thin, I am proud that the mortgage lending industry has continued to support home-owners, as well as to develop a thriving private rental sector and to underpin the funding of affordable housing for social tenants. On lenders’ behalf, the CML has a vital role to play in today’s housing and mortgage market.

How it all began

The UK housing market in 2011 is a far cry from the origins of the CML. It was formed on 1 August 1989, when Abbey National Building Society was converting to become a bank, when building societies were the predominant force in the market, and when the government’s decision on removing double MIRAS was to create a mini-bubble leading to the housing recession in 1991.

Originally, the CML was set up by the Building Societies Association (BSA) to protect its income, recognising that building societies’ market share would change significantly as a result of Abbey National’s conversion. However, the decision was to plant the seeds which would lead seven years later to an independent, whole-of-market, representative body which would take the mortgage lending industry through uniquely challenging times, help restore market stability and ensure that housing finance remains central to the UK economy today.

I am the third director general of the CML since its inception. I took over when a series of building society conversions to banks in 1996 led to the conclusion that the BSA could no longer represent all mortgage lenders’ interests. The transition ran smoothly. I became director general on 1 December 1996, opened a CML bank account with £1, and waited for a small group of BSA staff to join me on 1 January 1997 when the separation from the BSA took effect formally.

For the next few years, we outsourced our office and administration services to the BSA, a symbiotic relationship which worked well for both of us. Then, in 2006, we set out on our own when the BSA decided to leave the premises we shared at 3 Savile Row.

What has characterised the CML over the last 14 years? I would like to think strong leadership and clear direction, both in good times and in bad. However, that is for others to judge.

A clear direction

When I look at what makes me proud in my time at the CML, I reflect on the high profile the organisation has achieved and its strong familiarity, among both key stakeholders and consumers alike. I have lost count of the number of times people I have met have remarked that the CML has given a calm, reassuring and authoritative explanation of events in the mortgage market, or as I characterise it, "explaining the inexplicable".

We have also been blessed, most of the time, with strong favourable perceptions of the CML as a whole, if not always every individual member of it. I believe this also reflects our attitude of mind to stand up to be counted, particularly relevant in the febrile environment of 2007-09, and not to fall into the trap of "defending the indefensible" in terms of individual members’ past mistakes.

And more than either of these two underlying trends, I think the CML has been prepared to take a leadership role on difficult market issues. It is no surprise to me, therefore, that we have consistently performed well in surveys of stakeholders such as personal finance journalist and MPs, and I am particularly proud that, in 2004, the CML was recognised as the Trade Association Forum’s trade association of the year.

Some highlights

What have been the personal highlights in this journey? I will limit myself to some of the most significant market changes where the CML has given leadership.

First, but by no means least, we introduced an industry-wide mortgage code covering both our members, mortgage lenders, and mortgage intermediaries. Looking back, no-one believed it would be possible to get a strong voluntary code in place covering two disparate sectors, but we achieved it.

The Mortgage Code Compliance Board was an independent regulator set up to oversee the code.  It had powers to fine (and used them). It recognised the importance of individual registration of brokers (an issue the current regulator has not yet bottomed out) as well as "reasons why" letters for mortgage advisers. It introduced compulsory qualifications for mortgage advisers. And, bearing in mind its modest budget, I think it achieved a substantial amount in a very short space of time to bring the rigour of higher compliance standards into the mortgage industry. 

Nevertheless, having set up a successful voluntary body, we did not stand still. With a new financial services regulator, the Financial Services Authority (FSA), we asked for statutory regulation of the mortgage sector to create a "single" regulator for the industry. 

With the plethora of regulators that have arisen since then, and will be created in the future, it may seem naïve that a single financial services regulator was seen as a worthwhile concept back in the early 2000s. I would simply say that if that regulator had done its supervisory job properly and consistently, we would not have needed the changes now planned by the coalition government.

It was also in the early years of the CML that we set up a sustainable home-ownership initiative designed to fill the gap created by reduced state support for mortgage interest. That meant a focus on improving the take-up of private insurance – mortgage payment protection insurance (MPPI), with a sales process more rigorous than had previously existed. 


While a stigma has grown up because of mis-selling of payment protection insurance more widely, and a flood of complaints is under way, the CML’s detailed work largely avoided this criticism focusing on MPPI. This was an example where our proactivity paid dividends for the whole industry.

Another example is when we intervened on mortgage exit administration fees. When lenders increased their exit fees, and there was regulatory concern that these actions breached rules on unfair contract terms, we brokered a deal with the FSA to facilitate an industry-wide response. Firms changed their charging practices, and refunded fees to borrowers who merited compensation. 

Once again, co-ordinating an industry response to a potential bandwagon of complaints avoided reputational risks to the industry, the anger of borrowers, as well as the peaks of administrative workloads for firms and the Financial Ombudsman Service.

Market coverage

Behind the scenes, we have also worked tirelessly over many years to ensure that the CML can give an accurate, and up-to-date, view of trends in the market. When the FSA took on mortgage regulation, it introduced product sales data requirements for firms. Instead of the quarterly information that the FSA sought, we arranged that we received monthly transactional data from the body of our membership, so that we have a complete picture of activity each month across different types of loan, borrower types, etc. This means our monthly regulated mortgage survey data is keenly awaited and a reliable source of information on market trends.

However, we also recognised the importance of understanding the performance of loans so we have also built up arrears and possession data to the point where we now give a quarterly update to the market on trends. This has been particularly important as arrears and possessions increased as a result of the recent recession in the UK. 

It will also be a closely watched indicator to identify the level of financial stress faced by borrowers as interest rates move up, or if employment trends worsen. Certainly, the existence of this data has been helpful in underpinning the CML’s response to a worsening environment, both in terms of our lobbying the government on state support and debt advice funding, as well as enhancing our relationship with debt advice agencies. We also produced best practice guidance on arrears management at an early stage.

Dealing with the crisis

Life at the CML changed in 2007 when the closure of funding markets globally started the inexorable trend towards the credit crunch, the worst effects of which still persist. The gravity of the financial system being at risk was brought home in October 2008 by the failure of Lehman’s and the recapitalisation of a number of banks. Market nervousness remains today, whether we look at Europe or the United States as the causes of possible contagion.

These events have changed the UK mortgage market forever, both in terms of available funding, the make-up and attitude of the mortgage lenders who remain in the market now, and future relationships with borrowers.

It has also changed the central role of the CML from lobbyist for its members to the point where we have reached pseudo-partnerships with government departments, and other professional and trade bodies, to seek to ensure better market outcomes for consumers. This process of collaboration is still ongoing, because only by working together can we ensure the best possible environment for the housing and mortgage markets.

There are many agendas which will be centre stage in the next 12 months. First and foremost, the FSA is due to consult again on the mortgage market review (MMR) in the autumn, with the prospect of final rules in 2012. As the CML showed last year, it is important from both a lender and consumer perspective that the regulator lands in the right place with its new rules, and avoids an over-reaction which undermines both existing borrowers and limits the options for future home-owners (and for firms).

The way forward

I do not underestimate the difficulties which the FSA has in satisfying all of the conflicting views which it has received on the MMR. Adair Turner has highlighted that it is a question of whether to focus on helping the aspirations of the many, or protecting the minority from potential of detriment. To date, we have always emphasised the former approach but, with the experience of the last few years, it is a valid question whether risk aversion rather than risk management should be the watchwords for regulators in the future.

What is clear is that now is the time for that debate, so that we can come to a clear approach to social policy, and then that policy can be enshrined in the rules and culture of the new Financial Conduct Authority. 

I believe our hearts-and-minds campaign for a better way was demonstrably successful with positive support from, amongst others, the housing minister, the director general of the Confederation of British Industry, and the Financial Services Consumer Panel. Seldom in history can such a diverse group have reached a single vision, and I think that is testimony to the work of the CML staff, but also to the strength of the independent consumer research that we funded and published last year.

We are also awaiting a new government housing strategy in the autumn, and this will set the tone for the future relationship between the housing finance sector, central government, local authorities, housing associations, developers and others. 

Increasingly, it seems likely that the public sector will not be able to afford to fund housing to the necessary levels. Yet maintaining and, indeed, enhancing housing supply is a crucial issue for the UK. What role can the private sector play to bridge the gap, and how can this be managed at a time when funding sources are limited?

When we have seen where the regulator lands, and know where the government strategy is taking us over the next few years (combined with how localism is working in practice), we may then be able to see what a "normal" mortgage market might look like in the future. In the short term, my best guess is that 2012-14 will be similar in lending terms to 2009-11. In some people’s view it is a stagnant market, whereas others will see it as stable and a welcome adjustment to the over-exuberance in lending in 2006 and 2007.

New challenges

The final question to answer is: why am I stepping down, at the age of 51, from this exciting, central role in public life? The simple answer is that it is the right time for the organisation to have new leadership, with a three-year plan agreed in January and the next stage of the regulatory debate about to commence. 

From a personal perspective, I want new challenges. I do not see myself as time-serving to retirement, nor do I want to be in post for two economic cycles. One has been enough!

I know that Paul Smee, my successor, is looking forward to taking on the CML role at a time when its independent, whole-of-market representational role has never been more important. The CML is a high-performing organisation because of its excellent team of staff, and the collective influence of its members on society as a whole. There are many issues to address, pitfalls in the way, but the CML will continue to thrive, not simply survive, and rise to the challenges as it has since 1989.

It only remains for me to say thank you to everyone who has made my time at the CML so enjoyable and productive.