Mortgages 'are being rationed' - lenders

By Daily Mail Reporter
Updated:

 

Mortgages are having to be 'rationed' and the situation will get even worse next year, the Council of Mortgage Lenders warned yesterday.

Property sale signs stacked against a wall

Rationed: Mortgage lending collapsed by 70% in November

In an explosive speech, director general Michael Coogan said that the 11.7m with a mortgage are being forced to cope with a 'dysfunctional' market.

In a reference to the struggle of millions of homeowners to get a loan, he said: 'We have, in effect, returned to mortgage rationing.'

He also said the Government's £ 37bn banking bailout was not enough to stop the crisis.

He accused the Government, the Bank of England the Financial Services Authority of making 'piecemeal, selfinterested decisions'. Mr Coogan added: 'Unless Government takes further targeted action to help market participants, we will see a worsening picture next year compared with this.'

If they want to solve the crisis, he said, there needed to be a better Government guarantee to encourage lending between banks.

The CML expects a paltry amount of net lending this year of just £40bn, a fraction of the £108bn handed out last year.

His comments came amid a growing storm over controversial but little-known clauses in many homeowners' tracker mortgages, known as 'collars'.

These stop the mortgage falling below a certain rate.

Around 10% of the market have these and may not benefit if the Bank of England slashes the base rate again on Thursday. But speaking at the CML's conference, a director of the City watchdog said lenders may not be able to enforce these collars because they could be 'unfair.'

Unless the existence of the collar was made sufficiently clear to the borrower when they took out the mortgage, the lender may not be able to enforce it.

Jon Pain, managing director of retail markets at the Financial Services Authority, said the collar should have been mentioned in the Key Facts Illustration (KFI) given to all customers.

This contains the crucial information about the loan which they are about to take out, and is meant to spare them from trawling through all the terms and conditions.

The mortgage storm...and how to beat it

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Credit crunch storm shock horror Cartoon

Mr Pain said: 'If it is not [in the KFI], you run the real risk of both breaching our disclosure requirements and having an unfair contract term you can't enforce. I am well aware of potential systemic risk some lenders face in a very low interest rate environment.

'But the solution cannot be to introduce contract terms that don't exist or are unenforceable.' Yesterday lender Nationwide said its collar, which means it stops tracking the base rate at 2.75%, has always been in its KFI sent to all its borrowers.

Halifax, meanwhile, admitted yesterday that it removed any reference to its collar from the KFI in 2005, although it was still mentioned in its terms and conditions.

This could mean the embattled bank is not allowed to enforce its collar, a victory for homeowners but a costly disaster for the bank.

Under its rules, if the Bank's base rate goes below 3%, Halifax reserves the right to change the tracker margin.

A bank spokesman said it is currently looking into the matter.

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