The chairman of the Financial Services Authority, Lord Turner, has hit back at critics who have accused the regulator of creating a "mortgage famine" with tough new rules on lending, especially to first-time buyers.
In an attempt to play down fears about the exposure of the British banks to Ireland, Lord Turner also told the Treasury Select Committee that the banks' exposure to Irish government securities was "not worrying".
A bigger danger, he suggested, was the wider threat of a further downturn in the Irish economy, which would restrict profitable lending opportunities and add to bad debts. Ulster Bank, he said, was especially exposed.
Warming to his domestic theme, Lord Turner told the MPs that that "easy credit is not necessarily good for first-time buyers" and that enthusiasm for forwarding unaffordable amounts to home buyers during the bubble had created a "clear tail of very harmful lending". However, he added that the FSA would think about the balance between depriving sound borrowers of funding and preventing a repeat of the excesses of the boom. He said that the FSA's Mortgage Market Review was not complete and they would "think very, very carefully" about the consequences of new regulation.
Angela Knight, chief executive of the British Bankers Association repeated industry concerns last night: "Right now under the responsible lending criteria there is a lot of concern that individuals can not get the sort of high loan to value mortgages that they deem essential to get on the housing ladder.
"I hear from many people who say that this is as it should be and that the lower loan value ratio is right.
"I hear from many more people who say that this is preventing them getting on the housing ladder – I also hear from their parents who either can't get their sons or daughters out of their house as a result without having to stump up the deposit.
"These sorts of regulations have economic and socio economic consequences and I consider they are much too serious to be just down to a regulatory rule change. The Council of Mortgage Lenders has told the FSA to "think again" over tough new rules that its research says would prevent 150,000 people from being able to buy or move house in the coming months. Lord Turner argued to MPs that, for many of those 150,000, it will not be a question of whether they can get a mortgage at all, but rather whether they have one at 90 or 85 per cent of the value of the property.
Steve Morgan, the chairman of Redrow, recently used the housebuilder's annual meeting to warn that "Deliberately suppressing housing demand at the very time that the country has a chronic housing shortage is laying the foundations for the next boom/bust cycle."
Many in the industry now see a lack of demand from would-be buyers as becoming more significant than any shortage of finance: stagnant prices have suppressed any sense of urgency for many.
Lord Turner, accompanied by the FSA's chief executive Hector Sants, denied that they had taken their eye off the ball in reining in UK bank exposure to Ireland's debt crisis. Lord Turner said that the financial exposure of the UK banking sector was "not out of line with what you'd expect". His comments are at odds with those of Bank of England Governor Mervyn King, who admitted last week that the issue was "by no means trivial" to UK banks.Reuse content