The CML celebrates its 25th anniversary!
Published: 12 August 2014 | Author: Bernard Clarke
It was in 1989 – a time when the Berlin wall still stood, Margaret Thatcher was prime minister, the first commercial service provider of a thing called the internet surfaced, Indiana Jones and the Last Crusade was the highest grossing film and Del Boy fell through the bar – that the Council of Mortgage Lenders was founded. This month, we celebrate our 25th year as the representative trade body of UK mortgage lenders.
Our journey began when, in the summer of 1988, representatives of the Association of British Insurers, the Association of Mortgage Lenders (the predecessor of IMLA, the Intermediary Mortgage Lenders Association), the British Bankers’ Association, the Building Societies Association and the Finance Houses Association (the forerunner of the Finance Leasing Association) met to establish a single body to represent all UK mortgage lenders. A steering group was set up that saw the establishment of the CML on 1 August 1989. We are nothing if not efficient and, just a month after being established, there were over 155 members, dominated by building societies, but also including banks and a new building society-turned-bank, Abbey National.
A growing industry
In the 25 years since, we have seen the UK mortgage market grow from a £67 billion a year industry to £176 billion in 2013 (but with a peak in 2007 totalling £363 billion). In the last 25 years, the mortgage industry has given borrowers over 23 million loans to buy a home and lent out over £3.8 trillion.
The house price inflation of the past 25 years is strikingly illustrated by contrasting the first-time buyer in 1989 with today. Twenty five years ago, first-time buyers would typically borrow £29,000 to purchase their home, which was 2.22 times their gross annual household income, and on average put down a deposit of £1,500. In June this year, a first-time buyer typically borrowed £123,000, or 3.47 times income, and put down on average a deposit of £31,000.
But let’s not overlook the growth in income over that time. The average income of a first-time buyer household in 1989 was £13,700 a year; it is currently £37,000. Those new borrowers in 1989 would also have to deal with interest rates near their historic peak, at 14.9% in October that year, compared to today’s 0.5%, an historic low. This meant that first-time buyers were spending on average 25.7% of their gross income in 1989 on mortgage interest payments, compared to 11.5% today.
Regulation – and politics
Some themes in the industry remain unchanged. Our first annual report, published in 1990, has some remarkable similarities to today such as suggesting the industry had to deal with house prices remaining "high in relation to income," and the mortgage market being of "major interest politically." There was also a new type of regulation as a result of the Courts and Legal Services Act, which obtained Royal Assent to bring in a new wave of rules affecting the industry. Another hotly debated media topic was the newly introduced government scheme ‘Rents into Mortgages’ – the Help to Buy of its time?
But, there are also some striking differences. House prices in the relatively depressed period of 1989-90 fell by 5-10% in south east England, while the north of England and Scotland saw the largest year-on-year increases in this time.
The 1989-1990 CML annual report also states the government was “content to leave the mortgage market alone and there has been no significant government intervention”. It is safe to say times have changed in this area.
Over the years, the CML has been a key stakeholder in the development of affordable housing schemes, an evolving regulatory landscape and shared good practice. These changes have meant the mortgage industry is certainly wiser and more experienced than it was 25 years ago (with some scars to prove it). Partly due perhaps to the two housing slumps, in the early 1990s and following the financial crisis of 2008, there has been significant regulatory intervention, mainly in the last decade, to make the market more stable and attuned to the rest of the economy.
The Mortgage Code
In 1997, the CML introduced the voluntary Mortgage Code, complementing the Banking Code, to bring in consistent practices on mortgage selling and administration. It then lobbied for the Code to be superseded in 2004 by statutory regulation under the Financial Services Authority's mortgage conduct of business (MCOB) rulebook. This required firms to lend within a responsible framework and provide more information to borrowers upon application. Those powers were extended in 2007 to include home reversion plans. Then, in April this year we saw the implementation of the Mortgage Market Review (MMR), introducing a plethora of new regulatory requirements including interest rate ‘stress tests’ and affordability requirements, and advice for borrowers as the default service level. And we are now heavily involved in discussions about implementation of a European Directive that will have a major impact on the market in the next few years.
Alongside a much more regimented regulatory framework, another significant theme running through the past 25 years has been the question of how mortgage arrears and possessions should be handled. Early in the CML’s history, a downturn in the market resulted in 0.77% of all mortgaged properties being repossessed in 1991. During the recent downturn, repossession numbers peaked at 0.43% in 2008. There has been a steady decline since, with a repossession rate of 0.26% of all loans in 2013.
This difference is partly the result of a concerted effort by the CML and individual lenders to improve practices and help achieve better outcomes when payment problems occur. The past six years of successfully keeping arrears down have created a strong template which will continue to be developed further, especially with expected interest rate rises over the next few years.
We have been at the forefront of change over the last 25 years in all these areas. Looking ahead, the CML will continue to be a voice for the industry in the media, to publish and expand upon the data we provide to stakeholders, to organise events that highlight the best ideas in our industry, and to continue to be involved in the political and regulatory debate around the mortgage market.
Members and associates
Today, we have a bigger market, but a more concentrated industry. The CML currently has 122 members, eight third party administrator members and 83 associates, and represents 95% of mortgage lending in the UK. We have grown our commercial activities and host 27 events a year on a wide range of mortgage and housing related issues, with our annual lunch and dinner being among the most popular social events within the industry. We are well respected social and political commentators, with the CML being cited 60 times in parliamentary debates and questions, and mentioned in over 7,000 news articles in 2013. Almost 600 individuals within member organisations contribute to CML-run committees, panels and groups.
As in 1989, we see our current achievements as part of a process of development. We aspire, over the next 25 years and beyond, to expand further in our aim to represent lenders and to help create a sustainable, well-understood and fair mortgage industry in the UK.
We would like to thank all our members, associates and wider contacts for their support through our first 25 years. And we look forward to continuing to learn and develop with them over the coming years.