Come on: mortgage lenders aren't robber barons

NO ONE wants to defend the robber barons of the financial services industry, but the Consumers' Association surely goes too far in its attack yesterday on mortgage lenders. In "naming and shaming" the 10 worst "offenders", the Association cites a list of "rip-offs" and "scams" fair to make your hair stand on end, and in so doing it makes the case for a degree of regulation unparallelled in any other industry. Can it really be this bad?

NO ONE wants to defend the robber barons of the financial services industry, but the Consumers' Association surely goes too far in its attack yesterday on mortgage lenders. In "naming and shaming" the 10 worst "offenders", the Association cites a list of "rip-offs" and "scams" fair to make your hair stand on end, and in so doing it makes the case for a degree of regulation unparallelled in any other industry. Can it really be this bad?

Well actually no it isn't, and as ever the Consumers' Association spoils its case with headline grabbing exaggeration. As for its proposals on regulation, these come close to police state totalitarianism in the severity of the regime they would impose.

Most of us would agree that some degree of statutory regulation might be called for, even though the estimated £50m cost of putting it in place will ultimately be paid for in higher mortgage charges. There's plainly a case for improved standards of training and product transparency. and self regulation has singularly failed to impose them.

However, the Consumers' Association wants to go further, giving the Financial Services Authority powers to determine what's fair and what isn't. As such, this would not be regulation in the accepted sense at all, but a new departure amounting to outright state control of the industry. In a free market economy, it is the consumer who should be determining fair value, not the Government or its agencies.

Ensuring adequate competition and transparency would normally be the limit of a regulator's job, but even accepting the case for more penetrating regulation of the mortgage market, to allow the FSA to determine which products are sold and which are not would set an extraordinarily dangerous precedent.

For instance, in the past endowment mortgages were widely mis-sold and if the Consumers' Association got its way, they would be outlawed. The Association also seems to object in principle to any mortgage product with an exorbitant redemption penalty. However, in both cases there are borrowers for whom such products are entirely appropriate and to get rid of them entirely, or pigeon hole them into conforming to certain "benchmark" standards would be to deprive the market of its variety, as well as add to the cost of other products.

The Consumers Association highlights some deeply disturbing cases, including the quite bizarre instance of the NatWest mortgage holder who was charged a £41,000 redemption penalty on a £60,000 loan. Any mortgage contract that could give rise to such a penalty is plainly unacceptable, but to regulate on the scale demanded by Sheila McKechnie, director of the Consumers' Association, is like using a sledgehammer to crack a nut.

Any mortgage buyer who has done his research knows that NatWest has some of the highest charges in the business. As a result, the bank doesn't sell many mortgages. With new mortgage lenders cropping up almost by the day, it would be hard to argue that the market is still rigged against the consumer. At no time in the past has there been a better value range and diversity of mortgage products. In these circumstances, excessive and expensive regulation is much more likely to do harm than good.

Aerospace downer

PERHAPS THE Germans do have a sense of humour. On the very day that Tony Blair helps launch Britain in Europe, British Aerospace finds itself on the outside of Europe's biggest aerospace and defence merger. Yesterday's tie-up between DaimlerChrsyler Aerospace and Aérospatiale Matra of France has been coming almost since the day BAe decided to snub its European partners and opt instead for the all- British solution of a merger with GEC-Marconi.

A Franco-German alliance has been made still more inevitable since by BAe's blunt admission that its interests may be best served by a transatlantic merger to form a global aerospace grouping. In these circumstances, who can blame the Germans and French for wanting to huddle together for warmth?

Yesterday's formal statement from Stuttgart and Paris, announcing the creation of the European Aeronautic, Defence and Space Company (EADS), managed not to mention BAe once, even though it is a partner on the new company's two biggest programmes, Airbus and the Eurofighter.

The market interpreted this pincer movement by Dasa and Aérospatiale as bad news for BAe, leaving it more isolated from mainstream Europe as industrial consolidation gathers pace. BAe now becomes very much the minority partner in Airbus, with the merged Dasa/Aérospatiale/Casa group controlling 80 per cent of the civil aircraft manufacturer.

However, there's also a bull case for BAe to be made from yesterday's developments. Progress on converting Airbus into a single corporate entity becomes easier now that agreement is only needed from two partners. Remember also that even though BAe may own just 20 per cent of Airbus, it retains equal voting rights and therefore the power of veto.

Yesterday's merger may bring closer the day that BAe ceases to be a shareholder in Airbus altogether. Of all the Airbus partners, it has been the least enthusiastic about the proposed A3XX super-Jumbo, which will cost at least $11bn to develop.

BAe would probably jump at the chance of extricating itself from Airbus with a guarantee of continued workshare on the wings. Mr Blair might worry about such a move sending the wrong signals to our European partners, but it would also save his Government £450m in A3XX launch funding, and that's not to be sniffed at.

Bank of Scotland

IF ROYAL Bank of Scotland is to enter the bidding for National Westminster Bank, now is the time to do so. Sir George Mathewson, Royal Bank of Scotland's chief executive, has been beavering away trying to secure the magic word "agreed" on the top of his offer document, but time is running out, and with the clock now formally ticking on Bank of Scotland's assault, he'll need to move soon, with or without the NatWest board's backing.

The chief reason for this is the growing likelihood that all bids for NatWest will end up with the Competition Commission. In order to be considered on the same time frame as Bank of Scotland for regulatory purposes, Sir George needs to throw his hat into the ring with dispatch. For some reason, the City still seems to believe that both Scottish banks can somehow get round ministers without a reference. With £187m of fees riding on the Bank of Scotland bid alone, investment bankers have good cause for wishful thinking.

Unfortunately for the City, there are one hundred and one different reasons why the Government should think otherwise. Not least of these is the concern that to clear the bid would be to declare open season on the banks. A feeding frenzy might ensue, much as it did with the regional electricity companies, and many of Britain's banks would end up foreign owned.

Moreover, Gordon Brown, the Chancellor, has already tried to get the banks referred once on general competition grounds. When John Bridgeman, director-general of fair trading, refused he was forced to turn to the second best solution of Don Cruickshank. It seems unlikely he's going to miss this opportunity to get his way.

Outlook@independent.co.uk

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