Memorandum by the Council of Mortgage
Lenders (CML) (DRA 33)
INTRODUCTION
1. The Council of Mortgage Lenders (CML)
is pleased to respond briefly to the Select Committee Inquiry
into the Draft Regional Assemblies Bill.
2. The CML is the representative trade body
for the residential mortgage lending industry. Its 143 members
currently hold over 98% of the assets of the UK mortgage market.
In addition to lending to the private housing market, CML members
also lend for new build repair and improvement to social housing
with around £35 billion committed UK wide.
3. This response has been prepared following
consultation with members of the CML Social Housing Panel of lenders.
It focuses on the proposal to transfer responsibility for distributing
grant funding to housing associations (HAs) for new build repair
and improvement, from the Housing Corporation (HC) to the Regional
Assemblies.
HOUSING CORPORATION
INVESTMENT ROLE
4. The Bill makes provision to move the
strategic investment function currently exercised by the HC to
elected Regional Assemblies once these have been established.
5. The apparent attractiveness of such a
proposal is recognised in the context of the devolution of much
housing policy to the regional level as epitomised by the newly
created Regional Housing Boards. Nevertheless, our members have
serious reservations about such a move.
6. Having recently surveyed our largest
lenders with over 60% of the total funding market for HAs it is
clear that they set significant store by the co-location of the
HC's investment and regulation functions. This reliance rests
on two key features of the present regime:
— That HA performance as ascertained
by the regulator can feed into investment decisions as to who
should obtain funding. This is an important safeguard against
ill judged or risky development and against the poor execution
of development programmes.
— That the HC can use its access to
investment funding to facilitate mergers, takeovers and other
priming measures to assist HAs that have reached a position of
financial instability. This has been an important weapon in the
past.
7. In addition, a proposal to move investment
away from the HC would raise questions about the consistency of
criteria for taking investment decisions across different regions
and the continuity of process in terms of decision taking and
allocation of investment funds. Lenders, like other stakeholders,
need to operate across the country and do not want to have to
wrestle with a variety of differing systems, which will build
in their own duplication and inefficiencies.
8. A number of lenders have indicated that
they would look to make an upward adjustment to their lending
rates in the above circumstances and that their overall lending
criteria would become more cautious. As one of the largest lenders
put it "We would take the view that regulation had become
a subordinated function and would seek opportunities to raise
margins. This may mean differentiated margins by region."
9. At the very least, the HC should retain
control of the process of the allocation of funds and the ability
to take decisions as to which HA should receive funds within the
context of strategic parameters set out by a Regional Assembly.
In addition, the HC should have a role in the development of the
market intelligence that should underpin any Regional Housing
Strategy. Their close relationship to housing providers across
the country makes them well placed to take on this role, perhaps
in partnership with others.
10. The Regional Assemblies are not intended
to have the power to regulate other bodies. While the HC investment
function is distinct from its role as regulator of HAs the links
between the two are and should be very close. Regulatory assessments
should feed into investment decisions, and performance following
investment should inform regulatory activity. On these grounds
also therefore, the Select Committee may consider that distribution
of public investment is too close to the regulatory function to
sit comfortably with Regional assemblies.
MORE CONSULTATION
NEEDED
11. The UK social housing funding market
represents a major success story in the quest to form a partnership
between public funding and private finance. Over £35 billion
has been lent at rates that are widely recognised as being very
competitive. Rates are significantly below those for the wider
commercial property sector and this is in large measure due to
the HC in its regulatory and investment role. Decisions to change
the operating environment for lenders along the lines suggested
in recent publicity should only be taken after exhaustive consultation
and with strong safeguards.
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