COMMENT by LISA BUCKINGHAM: Mortgages denied to a generation

By Lisa Buckingham
Updated: 14:04 EST, 30 January 2011

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The shock of the economy hitting the buffers in the fourth quarter appears to have prompted the Government to pick up the cattle prod in an attempt to electrify laggard sectors.

Notably, Housing Minister Grant Shapps has ordered a meeting of major mortgage lenders next month to explain the latest record low levels of mortgage borrowing. New home loans (stripping out redemptions) totalled just £880million in December, the lowest level for more than a decade.

Shapps knows that the economy will not start to fire with the housing market in its current moribund state and intends to carpet the major banks and building societies. He believes that even good risks are being turned down for mortgages and is appalled that the average age of a first-time buyer (not helped by their parents) is now 37.

Home ownership: Interest-only loans allow first-time buyers to get a foot on the ladder

It is estimated that nearly 1.5million households want to own a home but are locked out by high prices and the lack of available mortgages.

Shapps intends to press the industry for innovative solutions, such as shared owner ship and schemes for parents to help their children buy homes.

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The problem for Shapps is not only is he up against an industry with its hands firmly in its pockets, but all the regulatory work under way is pushing in a direction that Shapps does not like. Apart, that is, from the fact that it will inevitably maintain the downward pressure on house prices. The Bank of England is happily pursuing its belief that loan-to-value criteria should not be relaxed to protect lenders should values fall far and fast and, to a lesser extent, to protect borrowers from themselves.

Meanwhile, the Financial Services Authority is discussing constraints that one source close to the talks said would amount to social engineering and, unless reversed, would deprive future generations of the chance of home ownership at all.

The FSA - apparently working from the basis of protecting those who failed to cope with their mortgage payments rather than those who would do anything to be given the chance - wants interest-only loans to be done away with.

Certainly some horror stories exist whereby home owners did not realise they had to repay the capital at the end of the loan, but surely these are a minority. And interest-only loans are a cheaper way for first-time buyers to get a foot on the ladder.

The FSA is also apparently trying to ensure that borrowers can always pay their mortgage over a 25-year period - so if you take a £240,000 32-year loan, the FSA wants to calculate your ability to repay over 25 years. Quite why is anyone's guess, but the pincer movement of the FSA and the Bank of England risks making home ownership a pastime for only the rich and middle-aged in future.

Certainly we must try to prevent people borrowing what they cannot repay, but to punish a generation by keeping them out of the housing market is absurd. And if people cannot buy or move home, their chance of being mobile enough to look for work will be zero.

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Irrespective of the outcome this week of the battle being fought by activist shareholder Sherborne for boardroom control of F&C Asset Management (it really is too close to call), the time may be right to review the rules governing such backdoor tactics.

City rules place few obligations on unlisted organisations determined to bring about change at listed companies by requisitioning an extraordinary general meeting. All they have to do is own the shares and neither the Takeover Panel nor the UK Listing Authority (the Financial Services Authority) place any obligations on such corporate invaders. They are able to go about their disruptive work (however well intentioned it is for the sake of shareholders) without being bound by any disclosure rules.

Sherborne has not had to give out any information on what it plans to do with F&C if it seizes boardroom control. Rumours abound that Sherborne might insist on a rights issue and demand that its founder Ed Bramson be made executive chairman of F&C (as opposed to a non-executive one) but they are just rumours. At no stage has it been forced to disclose.

A slight tinkering of the Takeover Code rules is all that it would take to make the playing field more level. No one wants to stop activist shareholders holding incumbent management to account - and forcing through change where necessary - but they shouldn't be allowed to engineer control while urging their fellow shareholders to vote with their eyes closed.