Lenders’ limits

Financial Adviser

We have been warning ever since Sir Callum McCarthy made his Gleneagles speech that the state, nor its agents, had no right intruding in to the private lives of its citizens, nor indeed should it involve itself in the legal contractual arrangements between citizens and businesses.

We have contended, and continue to, that regulation is about refereeing, holding the ring while the various parties discuss and negotiate their business arrangements.

Now it looks as if some lenders, mainly out of fear of upsetting the City regulator, have taken it upon themselves to ask borrowers about the minute details of their lifestyles, from how much they pay for a hair cut to whether or not they have Sky television.

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All this is about regulation by the rear-view mirror, with regulators having made such a mess in the years leading up to the global banking crisis and following recession, they are now anxious to do what they should have done then.

We only have to read the various reports and Alex Brummer’s excellent book on Northern Rock, The Crunch, then read the Treasury select committee’s forensic analysis of Project Verde and the Co-op Bank mess to see how far advanced has financial regulation come from those days.

Prudent lending and stress-testing a would-be borrower’s ability to keep up his or her mortgage repayments under different scenarios is responsible lending, but it is not the regulator’s business if someone chooses to allocate more than 40 per cent of his take-home pay to securing a roof over his head.

However, the lender is duty-bound to bring all the consequences of rate increases to the borrowers’ attention and seek reassurance that he or she fully understands the consequences. As we have said before, part of the social compact across the generations is that the baby-boomers must make room for younger people, burdened as they are with debt even before emerging from university, to get on the housing ladder.

This is a social obligation, and one that we must honour.