Mortgage arrears: follow up - Treasury Contents

Examination of Witnesses (Question Numbers 140-146)


23 MARCH 2010

  Q140  John Thurso: Multiple high risk category?

  Mr Pain: Yes. So those were the areas where we think clearly those consumers are most vulnerable in that context. That is the most logical place you would start your focus.

  Ms Titcomb: Looking at the design of products such as that and the marketing of those products to vulnerable consumers very much reflects our new conduct strategy anyway, which is to look further up the value chain at the actual design and marketing of products, not just after the event when they have been sold.

  Q141  John Thurso: Does this not go to really the heart of what people offering mortgages ought to be doing as their core business? We are talking about multiple high-risk characteristics, we are talking about people who should not be put in the position of achieving a loan, basically, and that ought to be the core business of what somebody offering a mortgage ought to be about. Is it not an indictment of the system that people can get a mortgage who have those high-risk characteristics, and how do we put that human evaluation of risk back into the system?

  Mr Pain: Those are the very issues that we are trying to address with part of the mortgage market. I come back to say that it is not some people with an impaired credit history or with some elements of those high-risk aspects of having a high LTV or high loan-to-income ratio, but the risk is increased if they have a combination of all those factors. That is where our focus will be. We do not necessarily want to shut out somebody because they happen to have an impaired credit history, or, likewise, because they are asking for a high LTV, what we think fundamentally sits behind it (your point) is they can demonstrate they can afford the mortgage—no more, no less—on that basis. What we found was that where that was not the case you increase the likelihood of those customers going into arrears. On the same basis, if you look back at the data we gave in our Mortgage Market Review, those instances where income was not verified also showed a higher issue in some cases of arrears.

  Q142  John Thurso: That brings me on neatly to my last question, which is to ask you whether there was any industry opposition to your proposal to end non-income verification or self-certified mortgages. Were there any (I will ask the simple question first), and, if there were any—

  Mr Pain: I think it is fair to say that the industry—

  Q143  John Thurso: What were the arguments that they deployed?

  Mr Pain: I think the argument they deployed, of course, was that not all those mortgages in those categories necessarily turned out to fall into arrears, which is obviously a statement of fact. What we were saying was there was a higher propensity for the instances of arrears in some of those areas. On income verification, of course, the industry has a view that with some, particularly, re-mortgaging or returning consumers to the mortgage market there might be a case where there is a lower level of risk with those consumers having to verify their income. I think our view at the time of the Mortgage Market Review was that the requirement of income verification was not a complete impediment to somebody having access to the mortgage market. It might involve some extra work, extra process, but we think the safeguards that produces are well worth those efforts.

  Q144  John Thurso: What we are actually talking about is not whether or not a person on a certain income is good for a loan or not, we are talking about whether the income they have declared is actually their income.

  Ms Titcomb: Correct. The other factors given were the costs of introducing new systems, the fact that the particular product of self-cert (which is where the particular issue had arisen), a niche product, was no longer being marketed, and the fact that if we were to require income verification in all cases it would end up in possibly denying access to the market for some customers.

  Q145  John Thurso: We would want to deny access to them, would we not? That is the point. We want to help them make the right decision.

  Ms Titcomb: We certainly want a proper assessment of affordability and verification of income, yes.

  Q146  Chair: Thank you for your time in giving us this progress report since your last appearance. The issue of enforcement and disciplinary action, I think, is work in progress, and whilst this Committee in this Parliament will not look at it again, I sincerely hope that in the next Parliament the Treasury Committee will invite you back and you have a positive discussion with them. Thank you very much.

  Mr Pain: I look forward to that. Thank you, Chairman.

  Ms Titcomb: Thank you.

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