annual report contents
chairman’s conveyancing 4 introduction 18 and fraud
director general’s mortgage funding 5 overview 19
2010: a record of the funding and the 6-7 year in numbers 20-21 rental sector
mortgage market the media 8-9 review 22-23 environment
mortgage regulation: the political 10-11 debate is launched 24-25 developments
other regulatory adding value for 12-13 issues 26-27 members and associates
market research, strategy and 14-15 commentary and data 28-29 finances
16-17 arrears and possessions 30 members and associates chairman’s introduction Colin Walsh
This uncertain outlook requires us all and support the long-term health of I am pleased to to act together, making a concerted the UK economy. We need committed, present the CML effort to set the right direction. We financially sound lenders providing must be focused on creating a long reliable products, which are dependable annual report for term, sustainable UK housing market, and adapt to the circumstances. Lenders so people in this country can continue must continue to embrace product 2010, a year in to realise their aspiration of home- innovation. Lastly, we need a sound which the industry ownership. But there must also be house-building and development choices for those for whom home- industry, financially structured and continued to ownership is not a realistic tenure, and supported to ride through the peaks lenders want to continue to help fund and troughs of the economic cycles. stabilise, but at the the private and social rented sectors, too. end of which there As the trusted voice of the industry, It is clear that house price movements the CML is in a unique position to were still many affect people in the housing market in work with the four key parties - and different ways. While the direction of with other stakeholders - to create an challenges to price movements is viewed according environment encouraging a long-term be overcome. to where you are in the market, the sustainable housing market. We will underlying driver – the imbalance continue to work tirelessly to represent between basic demand and supply – the industry and deliver the holy grail – means the fundamental problem remains a sustainable housing market. We must unresolved and is likely to worsen until now make the most of this opportunity mortgage lending and annual house- to set and deliver this direction of travel. building reaches a higher, sustained level In getting us this far and ensuring we to address these imbalances. successfully navigated through the challenges of the past two years, I would The challenges to the group of house like to thank my predecessor, Matthew purchasers key to the long-term health Wyles, for his leadership and dedication. of the market – first-time buyers – This year will also mark another remain. But their difficulties are not significant change in the leadership of unique. Recent research into second the CML, with Michael Coogan moving steppers – those making their first to pursue new challenges. move up the housing ladder – has revealed a set of problems which can Since 1996, Michael has been the limit their options, too. director general, leading the CML To deliver this long-term through boom and recession, while sustainability we need the four key providing a highly effective mouthpiece parties – government, regulators, for articulating and promoting industry lenders and house-builders – to views with great effect. I wish to thank work together. Michael in particular, but also the entire We need the government to team at CML, for the outstanding work give clear policy direction, they have done on behalf of our industry. carried out consistently with well thought through policies to avoid unintended consequences. We need regulation which is proportionate and appropriate to the current market circumstances. It must dovetail with government policy
4 director general’s Michael Coogan overview
It is with mixed feelings that I pen my final contribution to a CML annual report, as I look forward to standing down from my role after nearly 15 years.
I hope you will forgive me for mentioning The CML has a high-performing team the FSA was not listening to us, as it one or two keynote events. After taking in place, ready for the challenges of the adopted its new conduct risk strategy. So, on my role, the CML took a lead in future. Although I have been the CML’s we implemented a “hearts and minds” introducing regulation with a mortgage figurehead, I would be the first to say campaign, backed by market data and code for lenders and intermediaries. that our reputation is driven by this team consumer research to show that the FSA Many in the industry still miss the which, at all levels, has been exemplary needed to re-think. In speeches in 2010, Mortgage Code Compliance Board, and and has performed exceptionally. I talked about “the end of the golden believe its cost-benefit value was more age of home-ownership,” and “fatally clearly demonstrable than the Financial In 2010, recognising that a problem flawed” FSA proposals. Sometimes, I was Services Authority’s (FSA) today. shared is a problem halved, we have described as creating heat, but we have worked with organisations as diverse inspired the public debate that Adair More than 10 years ago, the CML sought as the Association of Mortgage Turner asked for last year. to build a partnership with government in Intermediaries, the Law Society, the support of sustainable home-ownership. Home Builders Federation, Shelter, As 2011 progresses, it is helpful to know Now, with fresh uncertainty about arrears Citizens Advice and the Financial Services that Hector Sants has described the MMR and possessions, our understanding of Consumer Panel. Working together, we as being at a stage of “analysis”, and that final the issues and risks are substantially can deliver better market outcomes – a rules will not be implemented this year. better than in the early 1990s. We constant message to government and cannot be complacent about government regulators as well. I can now move on to other challenges, commitment to the safety net, and the no doubt still taking a close interest in regulators are increasing prudential Within the organisation, there has been the mortgage market, confident that the pressures. Unfinished business. a major re-vamp. This year, we have excellent CML staff, with my successor, updated our constitution and developed will take the organisation from strength It is with particular pride that I recall a new three-year plan and budget up to to strength. recognition for the CML externally. 2014. Perhaps the highlight was the Trade Thank you for your personal support Association Forum’s association of the We have revitalised our engagement with over the years, and your support for the year award in 2004. members, who are more aware of policy CML in 2010. developments, help formulate policy, and I have also prided myself, and my are fully ‘in the loop’ in a fast-changing colleagues at the CML, for being prepared environment. to explain the inexplicable, but never to defend the indefensible. This has We have continued to identify areas never been more necessary than in the where thought leadership is necessary to period since 2007, when media interest take the industry forward. intensified. But the highlight, personally, in 2010 We have left behind that period of was leading on the mortgage market instability, as an industry and organisationally. review (MMR). It was clear to me that
5 2010: a record of the year in numbers
Gross mortgage lending (monthly, seasonally adjusted) Net mortgage lending (monthly, seasonally adjusted)
Lending for house purchase (monthly) Average first-time buyer deposits
Tenure distribution House prices
6 Net mortgage lending (monthly, seasonally adjusted) Gross lending by borrower (monthly)
Average first-time buyer deposits First-time buyer composition
House prices Mortgage possessions, previous vs. current downturn
7 mortgage market review
The FSA has been reviewing the mortgage conduct of business rules since soon after their introduction in 2004. After the crisis, this was re- focused as the wide-ranging mortgage market review (MMR).
Since its launch, the MMR has been requirements, a firm must determine • lenders should assess affordability a key policy priority, and we have that a mortgage is affordable. The FSA on the basis of a maximum 25-year continued to represent the views of all defined an affordable mortgage as one term, even if the borrower types of lender. allowing the consumer: proposes to take out a longer term loan, which would reduce At the outset, the FSA set clear “to meet current and future payment the monthly payments; and objectives for the review: to deliver obligations in full without recourse to • lenders should stress test the loan “a sustainable mortgage market for all further debt relief or re-scheduling, avoiding accumulation of arrears while against potential interest rate rises. participants,” and one that is “flexible allowing an acceptable level for consumers.” We support these of consumption.” We were also concerned about the broad objectives. We also agree with cumulative impact of these measures, the FSA’s view that the MMR’s scope At face value, this may sound sensible. which would create layers of protection should include the impact of prudential But it burdens the lender with the but restrict access to lending to regulation, conduct of business and impossible task of judging ability to make significant numbers of new and existing fighting financial crime. payments throughout the term of borrowers. This exclusion would be the mortgage. exacerbated by the caution of lenders, We also agree with many of the more given the additional regulatory risks they would face in complying with the detailed objectives of the review, In proposing how rules could be drafted proposed new rules. including the strengthening of to ensure this requirement is fulfilled in practice, the FSA suggested that: requirements for lenders to assess the Given the scale of its potential impact, borrower’s income and the affordability • a mortgage would not be the review is clearly a political, as well of the mortgage. affordable if, in any particular as a regulatory, issue. Following the month, a borrower’s expenditure election, we therefore pressed the Where we disagree is on some of the exceeded his income; new coalition government to clarify its details of the FSA’s policy proposals, views on housing policy and the role of and on the risk-averse principles • lenders would have to take into mortgage regulation, both in protecting underpinning its new approach to account fluctuations in consumers and helping deliver the conduct risk and consumer protection. income and expenditure over government’s wider objectives. Risk is inherent to the mortgage time for all borrowers, including self-employed people; We succeeded in persuading politicians market, but needs to be managed. and others to enter the debate about • borrowers with an impaired the FSA’s proposals. In a speech in March, FSA chief credit history should have their executive Hector Sants gave more income discounted by up to 20% details of the approach to conduct risk. to provide a buffer for undisclosed debts; The FSA’s objective, he said, would be to take pre-emptive action. This would • lenders’ requirements to verify “I appreciate the sterling work require making judgements on what future income should capture of the CML on the mortgage were considered to be unacceptable pension payments where a market review. I am delighted practices. The MMR is the first mortgage extends into retirement; application of this approach across an to see you taking on the entire industry. • lenders would have to decide that, debate, backed up by such if borrowers proposed working beyond retirement age, they would comprehensive research, and I In our view, seeking to protect reasonably be capable of this; can only hope you get the credit consumers in this way transfers too much of the responsibility for taking out • lenders should assess the and the outcomes you seek” a mortgage from the borrower to the affordability of a mortgage on a Patrick Bunton, lender. This creates a new regulatory capital repayment basis only, even if London & Country Mortgages risk – discouraging lending, instead of the borrower reduced monthly enhancing responsible behaviour. payments by taking out a less In order to meet responsible lending expensive interest-only loan;
8 Since October 2009, we have been immersed in our largest ever consultation exercise – a hearts-and-minds campaign with a range of stakeholders: “Well done, CML. Said in plain members, consumer groups, government, housing bodies, research language that hopefully even the FSA organisations and others. will understand. Take note, others that We have submitted eight detailed responses – comprising more than 650 are supposed to support and promote pages in total – to FSA discussion and consultation papers. our interests. This is what you should Throughout this process, our over-riding objective has been to ensure that the be saying” MMR delivers the FSA’s stated objectives of sustainability and flexibility. We Tony Joannou, article in Mortgage Strategy have tested our views with consumers, who shared our perception that the regulator’s risk-averse approach was going too far.
January FSA discussion paper 09/3 Our 49-page response supported in principle well-intentioned reforms in the MMR. But on the MMR implementation caused concern, as the FSA risked over-reacting without clear evidence. Adding unnecessary layers of additional regulatory requirements risked excluding swathes of borrowers.
April Part one of FSA We accepted in principle the proposals on arrears, but our 17-page response said details would be consultation paper 10/2 on crucial. Firms should not make arrears charges if a customer was adhering to an arrangement to repay. arrears handling proposals But some proposals would require systems changes by lenders, with implications for the timetable for implementation.
April Part two of FSA Our 11-page response accepted the principles of continuing to monitor individuals effectively, while consultation paper 10/2 on stepping up measures to stop rogue individuals from entering the market. Our main concerns were approved persons with the potential misalignment of policy and rules, with policy focusing on sales and rules capturing customer service and administration. Lenders with different business models could be affected in different ways. The proposals could also distort the market or delay its recovery.
September FSA responsible lending Our 10-page response welcomed discussion of how products should be regulated before publishing consultation paper 10/16 – draft rules. But there were risks that if the proposals were implemented as drafted, interest-only response on interest-only mortgages would effectively vanish, restricting consumer choice. Checking annually the existence of mortgages borrowers’ repayment plans, and the regulatory risk in judging their adequacy, would be prohibitive. Concerns over borrowers with a shortfall at the end of their term were acknowledged. But the number of cases is low. And lenders usually arrange acceptable plans with the borrower when it occurs.
Interest-only mortgages are an appropriate choice for a range of customers. We will continue to oppose measures that effectively regulate them out of the market.
September FSA responsible lending Our 10-page joint submission with the Intermediary Mortgage Lenders Association argued that non- consultation paper 10/16 banks were an important source of competition, playing a useful role by meeting demand for higher-risk – response on behalf of lending, ensuring it was not concentrated on the balance sheets of deposit-taking firms. non deposit-taking lenders (non-banks) November FSA responsible lending Our major output of the year, a 506-page submission, containing two independent research reports. consultation paper 10/16 We called for the government to ensure a proper policy debate, and on the FSA to consult on proportionate policy and rules after analysing their effects thoroughly. Regulation must reflect government housing policies, and the FSA’s cost-benefit analysis fell short of expectations. Research findings reinforced that the FSA had not taken enough account of likely lender and consumer behaviour, new prudential requirements, and market corrections already in place.
November FSA responsible lending We agreed arrears charges should fairly reflect additional administrative costs. However, regulation consultation paper 10/16 should also be based on current practices, not those already eliminated from the industry. The impact – proposals for arrears of all regulatory, industry and court provisions had to be assessed before making changes. charges February FSA consultation paper Our 48-page response said the FSA was further tipping the balance of responsibility away from 2011 10/28 on distribution and consumers and towards firms by, in effect, requiring all mortgage sales to be advised in all but name, and disclosure restricting consumer choice.
More generally, it was not possible to judge in isolation the impact of the FSA’s proposals on market competition, sustainability and flexibility. The FSA would therefore need to consult again on all principal policy proposals and rules to ensure that together they deliver what is intended.
9 mortgage regulation: the debate is launched
“You need a housing market where people are able to sell, buy, move to different parts of the country, or go in search of that job they want or reunite their family or whatever it is. The housing market has become very stuck… What we want is a market that is moving… That is what we are trying to deliver” Prime Minister David Cameron during a factory visit, 5 January 2011
The FSA’s work on the MMR triggered perhaps the widest debate the UK had ever seen about responsible borrowing and lending; consumer choice, protection and aspiration; and housing policy, provision and the future balance of tenure.
In our initial response to the FSA’s need to, and imposing regulatory The first part of the research to be July consultation paper on responsible costs which are disproportionate to published was our own analysis of the lending, we acknowledged that what we can realistically achieve.” impact of the FSA’s proposals. When regulatory change was inevitable it appeared in October, our research and looked forward to working We agreed on the need to strike the concluded that, if all the proposed with regulator on a pragmatic right balance, arguing that a conservative measures had been in place since 2005, approach to deliver it. But for the approach by the regulator to assessing some 3.8 million mortgages on which immediate future, we argued, the affordability would make lending safer, borrowers had been successfully making market had corrected itself. but make it more difficult for some their payments would potentially not households to get a mortgage. have been granted. Of course, there So, there was enough time to make would also have been fewer loans falling sure that problems were correctly We also agreed with his call for a into arrears, but this effect would have identified, solutions properly tested, debate. But, in our view, there were been modest and disproportionate and the right kind of reforms sensibly too many gaps in what the FSA had so to the potential exclusion of large implemented. Neither consumers far published about the impact of its numbers of creditworthy borrowers. nor lenders would benefit from well- proposals for there to be a properly intentioned regulation that would have informed debate. Having consulted Our own analysis was followed in negative, unintended consequences. with members, we therefore embarked November by the publication of two on a research project, which eventually other major pieces of independent In his speech to the British Bankers’ proved to be on a larger scale than research, which we funded: Association conference launching anything we had ever undertaken before. the consultation paper, Adair Turner accepted that the FSA was signaling a move towards greater restrictions on consumer choice and the availability of credit – a change “What is required is proper, sensible, top-level in direction from the type of market regulation, not pernickety, down in the dirt, ‘what with which, he acknowledged, “most of society seemed happy.” can you and what can’t you do’ as a mortgage company. And I do hope the FSA will be getting this In doing so, he accepted there were message from you and everyone else” challenges, in particular “the risk that we swing to the other extreme, restricting Grant Shapps, housing minister, consumer choice where we do not at a building industry lunch, 25 November 2010
10 • a compliance analysis of the FSA’s minority, or give an opportunity to the “This is a major shift in proposals for income verification majority to achieve their aspirations? mortgage regulation: the debate is launched and affordability by the economic philosophy and I believe research consultancy Oxera, By now, politicians, commentators a necessary one…We entitled “An assessment of the FSA’s and other groups were beginning to need to strike a balance, proposed rules for mortgages;” and respond to these questions, adding impetus to Lord Turner’s call for a and to get that balance • a second report by the economic comprehensive debate of the issues. right, we need to debate and social research consultancy Policis on the impact of the MMR In November, eight housing and it openly and explicitly: on consumers and the market, New legal groups, including the Home with the industry, with approaches to mortgage market Builders Federation, the National regulation: The impact of the MMR Housing Federation, the Chartered the press, with and the risks and benefits for Institute of Housing and the Law the politicians, consumers, society and the wider Society, signed a public letter to with society” economy. George Osborne expressing “deep concerns” that “onerous and overly Speech by Adair Turner, In publishing this research, we called on prescriptive proposals will restrict FSA chairman, 13 July 2010 the FSA to undertake its own full and access to home-ownership and complete analysis of the impact of its have far-reaching implications.” proposals. We believed that, once this had been published, all those taking part At the same time, the Financial Services in the debate would be able to respond Consumer Panel called on the FSA to more constructively to the FSA, as it undertake a full cost-benefit analysis sought to identify and implement the of its proposals and “to take more right regulatory outcomes. In our time to ensure its proposals deliver The key point about the mortgage market view, the FSA’s proposals, as they were the consumer benefits it intends.” in 2010 – and today – is that it remains drafted at that stage, were well- dysfunctional, with only a small number of intentioned, but flawed and impractical. Journalists, too, were voicing concerns. active lenders participating in it, with all In The Independent, David Prosser said firms affected by an acute and continuing shortage of funding, and large numbers of The Oxera and Policis research reports the FSA was “over-reacting massively, creditworthy customers either excluded formed a significant part of the 506-page regardless of the consequences.” And from the market altogether or unable consultation response we submitted in The Scotsman, Jeff Salway wrote: “The to re-finance from their existing loan. to the FSA a fortnight later. As well as FSA is trying to regulate a market that, identifying gaps in the FSA’s analytical to all intents and purposes, no longer In our view, the FSA’s proposals risk reinforcing these effects and cementing work, our response argued that not exists…(and) must either water down them in place for many years to come, enough account had been taken of its proposals or delay implementing without properly analysing the causes of the likely behaviour of lenders and them until the market has recovered.” a dysfunctional market and the full effects consumers, the effects of new prudential of the changes it proposes to make. And requirements on firms’ capital and By January 2011, criticism was building with market conditions and current conduct presenting no real threat to consumers, there liquidity, and the extent to which the across political boundaries. Having is no need for the rushed implementation mortgage market had already corrected. secured an adjournment debate on the of reform that might not be appropriate. FSA’s market review, Conservative MP In submitting our response, we posed Robert Syms told MPs that there were The fundamental question for 2011 and the some key questions and called for “fundamental concerns about many coming years is how regulation can protect a clear steer from the coalition proposals transferring responsibility the vulnerable minority, while allowing the majority reasonable opportunities to government in answer to them. What away from the consumer and to the achieve their aspirations. Both are possible. kind of regulation was needed to lender.” And, at the beginning of We want to work with the FSA towards support housing policy and deliver February, Labour MP George Mudie said regulation that permits free access to the stability to the mortgage market in he was “horrified” by the MMR, which market for responsible customers, while the 21st century? And did we want could “damage the building industry, building an effective safety net for the few who experience mortgage difficulties regulation to protect the vulnerable damage the mortgage industry and due to changes in their circumstances. damage young kids getting a start.”
“Despite Lord Turner’s call for a debate, the CML has been one of the few prepared to put its money where its mouth is and engage. How we regulate ought to tie in not only with the political rhetoric of the age of home-ownership, but the practical questions of how we achieve it and what level of risk is acceptable”
CML chairman Matthew Wyles at our annual conference, 18 November 2010
11 other regulatory issues “Rules are close to being implemented – but lenders warning of unintended consequences for borrowers happen to be right. The CML is a formidable mouthpiece for the industry, but it also does a good line in reality” Jeff Salway, The Scotsman
Although the We expressed our support for: warnings would not work, given cultural differences, different European Commission • A principles-based approach levels of financial capability, to European regulation and other problems that are only had been expected to recognising that there are encountered in some countries, publish a draft significant differences between for example, foreign currency national markets. Consumers mortgages. directive on are not best served by an responsible lending and attempt to harmonise • Seeks to impose the European detailed rules. standardised information sheet borrowing in for mortgage credit across November, its • A proportionate approach, with Europe. There would be consumer benefits weighed against considerable costs for UK lenders, proposals were delayed the costs and other consequences with no benefits for UK of introducing new rules. consumers, if this replaced the until spring 2011. existing ‘key facts’ illustration. • A balance of responsibilities During the year, we continued to play between lenders and borrowers, • Limit the design of mortgage a key role in co-ordinating UK with responsibility for the decision products, thereby inhibiting and European industry responses to borrow lying ultimately with product innovation and to the initiative. the consumer. restricting consumer choice.
Both nationally and within Europe, we • Requirements for lenders to • Seek to impose blanket loan- sought to highlight the potential for assess robustly the affordability to-value or debt-to-income conflict for UK firms, with the EC and of a loan for a prospective customer. caps, which could restrict the FSA both pursuing an overlapping consumer access to mortgages agenda of regulatory reform. Conversely, UK lenders would and potentially lead them be concerned about proposals to seek more expensive We chaired the European Banking for European regulation that: or risky credit elsewhere. Industry Commission working group responsible for co-ordinating • Are not based on a narrow • Force lenders to deny a loan the European industry response, definition of a mortgage, if a borrower’s creditworthiness published in July. In September, we which would ensure that second is impaired. This would submitted our own response to the charges, buy-to-let mortgages, and unjustifiably exclude some Commission, coinciding with the loans on properties that consumers, and reinforce European Mortgage Federation. combine residential and commercial perceptions of a converse There was also a joint response are not captured by proposals. ‘right to credit’ for anyone to the Commission from the UK who gets a positive assessment. Treasury and the FSA. Each argued • Are over-prescriptive on that the Commission had not made the inclusion of risk warnings • Require lenders to explain why a case for European intervention and standardised information borrowers had been turned in mortgage market regulation. in advertisements. A pan- down for a loan. This would create European approach to consumer legal uncertainty, add
12 disproportionately to costs, and When the Treasury published a fresh • special constraints that potentially encourage fraud or the consultation paper in February 2011, mutually-owned organisations gaming of lenders’ underwriting it proposed re-naming the CPMA face in raising capital externally; and processes. the Financial Conduct Authority (FCA). It also clarified its proposed • the cost of levies to fund the • Seek to apply the annualised role as a consumer champion, in Financial Services Compensation percentage rate of charge upheld greater sympathy to our views. The Scheme. in the consumer credit directive. Treasury now says that the FCA’s This is not designed for mortgage core purpose should be “protecting We argued that, at a time when products, and does not allow and enhancing the confidence of all greater diversity and competition in consumers to make proper consumers in financial services.” the mortgage market was needed, comparisons. the confidence of the building society It also specifically recognised the sector was being undermined, not least We will continue to represent lenders’ importance of consumers taking by a sense that the regulator lacked interests on these, and other, issues responsibility for their own choices. The trust in its ability to manage itself. as the Commission develops its Treasury stressed that it did not believe proposals. We will lobby for European the objective should be to “shift the Capital and liquidity proposals that work in a UK context, responsibility for taking decisions from do not impose inappropriate or the consumer on to the regulator.” In conjunction with other UK excessive requirements on UK firms representative bodies, we sought to and consumers, and do not conflict Regulation of building societies ensure that European proposals for with proposed FSA rule changes. We implementing the Basel capital are also not convinced that a European Our response to the publication requirements directives (CRDs) regulatory initiative will promote a in March of a new building society 3 and 4 did not cause detriment single market for mortgages in Europe. sourcebook by the FSA highlighted to UK lenders. that this could put societies at a Wider UK regulatory reform competitive disadvantage, given that We also tried to ensure that the ongoing MMR could impose the implications of new capital In October, we responded to the requirements that might conflict requirements were properly Treasury’s consultation on future with advice in the sourcebook. understood, including those for prudential and conduct of business holding capital against mortgages regulation in the UK, and the scope In our June response to the Treasury’s advanced at higher loan-to-value and responsibilities of the proposed discussion paper on building societies, (LTV) ratios. Typically, firms now new regulatory bodies, the we said we were not convinced that have to hold six to eight times more Prudential Regulatory Authority the proposals would reverse trends in capital for a mortgage advanced at and the Consumer Protection and savings and mortgage markets and help an LTV ratio of more than 90% than Markets Authority (CPMA). support the mutual model, as promised one offered at a ratio below 60%. in the coalition government agreement. This has major consequences for the We broadly accepted separation availability and cost of mortgages of prudential and business conduct We emphasised that societies face for first-time buyers in particular. regulation, but challenged the assertion a number of significant and specific that the CPMA should be a ‘consumer challenges in the aftermath of the We represented the interests of champion’. We argued it should: credit crunch and financial crisis. UK lenders as the EC consulted Increased competition from banks on the implementation of CRD • support a market in which for retail deposits created particular 3, which contained measures for consumers are provided with problems for societies, given their upgrading standards of disclosure clear information to make traditional dependence on savings. for securitisation and higher capital informed and considered These were exacerbated by: requirements for re-securitisation, to choices, but retain responsibility try to make sure firms took proper for their own decision-making, • increased competition for retail account of the risk of investing in thereby helping address a key flaw deposits from the government’s complex financial products. During in the FSA’s approach in the MMR own National Savings scheme the spring, we also ensured that – that is, the perception that (which also does not recycle the views of UK lenders were consumers needed protecting funding into the UK mortgage reflected in the EC’s consultation from themselves with the market); on implementing CRD 4. responsibility falling on firms; and • sourcebook guidance and • focus on causes of real consumer other requirements for detriment, and avoid populist, but societies to hold more low inappropriate, campaigns, like those interest bearing liquid assets and that exposed consumers to higher levels of capital relative unscrupulous claims management to loans; companies.
13 market research, commentary and data
With lenders facing a clear strategy, with tangible support Our research showed that, in such for UK markets in residential mortgage- conditions, popular affordability challenging conditions backed securities and covered bonds, measures based on initial mortgage in order to help deliver an adequate interest payments can present an in 2010, we sought supply of mortgage funding. overly positive picture of the prospects to ensure that our for first-time buyers. Our research into affordability and research activities first-time buyers, published in February, As the year progressed, the continuing looked at the reasons behind a decline exclusion of first-time buyers from the were focused on in numbers for this group of borrowers market became a more significant issue areas that had the to less than half the long-run average. for lenders. It was a key topic for our The research also analysed the impact incoming chairman in his speech to greatest bearing on of historically low interest rates. One the annual conference in November. effect of low rates is that borrowers And with the housing minister calling members’ make significantly higher capital a summit on the challenges for first- business activities. repayments in the early stages of the time buyers early in 2011, we identified mortgage. work in this area as a high priority as we looked ahead. Our research into the potential effects of the MMR was the year’s clear priority. But, earlier in 2010, we published research into two areas of First-time buyers, mortgage interest payments: income, % major importance for lenders: 40%
• the outlook for mortgage funding 35%
markets in the UK over the next 30% five years; and 25%
• affordability and first-time buyers. 20%
15% Published in January, our research into funding markets analysed how they 10% would be affected by a range of factors, 5% including the requirement to repay 0% £300 billion of government support by 1974 1979 1984 1989 1994 1999 2004 2009 2014. We assessed the impact of this Gross Net of MIRAS on the wider availability of funding for lenders and borrowers, and argued that Source: CML/Banksearch Regulated Mortgage Survey, Survey of Mortgage Lenders the government would need to develop
14 Budget commentary and forecasting Market commentary
Although the market remained subdued in In line with our view of a subdued lending market in 2010 and beyond, in December 2010 with few significant changes in direction, we published forecasts for a flat market in 2011. We predicted that gross lending there was an unusually high degree of would total £135 billion, with net lending down £2 billion to £6 billion. political intervention, with a Labour Budget in March followed by another presented by the coalition government in June. On the measures announced by Labour chancellor 2008 2009 2010 2011 forcast Alistair Darling in March, we: Residential property 0.90 0.86 0.89 0.86 • Welcomed proposals to exempt transactions, UK, million first-time buyers from stamp duty Gross advances, £bn 253 143 136 135 on purchases up to £250,000 for two years. In support of this measure, Net advances, £bn 40 12 8 6 HM Revenue and Customs published clear guidance on exactly who would qualify. But, as our earlier research Arrears, 2.5% or more of outstanding balance at end period: pointed out, demand from first-time buyers remained subdued against the Number 182,600 196,400 169,600 180,000 backdrop of a weak economy and other pressures, and the stamp duty % of all mortgages 1.57 1.72 1.49 1.58 concession has failed to create any significant increase in first-time Possessions in period: buyer numbers. Number 40,000 47,700 36,300 40,000 • Assessed that stamp duty proposals overall would be broadly neutral, with % of all mortgages 0.34 0.42 0.32 0.35 the first-time buyer concession offset by a new 5% rate on property transactions over £1 million. Throughout 2011, we continued to publish a monthly market commentary, informing • Welcomed proposals to retain the members and others interested in developments in UK mortgage and housing existing higher rate of support for markets. mortgage interest (SMI) until the end of the year. In September, we published our annual list of the 30 largest UK mortgage lenders. Our accompanying analysis explained the wider context of a market • Welcomed plans to transfer the that had contracted significantly and re-structured substantially, with more than regulation of second charge lending 80% of lending activity concentrated in the hands of the five largest firms. We from the Office of Fair Trading to the used publication of the largest lenders’ data to highlight the need for reforms to FSA. In our view, a single regulator for encourage the development of a more diverse and competitive mortgage market. all secured lending makes sense. Data services • Welcomed proposals for HM Revenue and Customs to work with the industry During the year, we worked towards switching to a new outsource partner, Matrix on developing an income verification service to help combat mortgage fraud. Solutions, to collect data from our regulated mortgage survey (RMS) and develop the range of analytical services available to members. By the end of the year, Responding to the June Budget delivered by this process was complete, and our new system now offers greater flexibility to George Osborne, we: undertake more complex analysis of RMS data. Members contributing data now have access to a wider range of industry statistics, and are able to benchmark their • Acknowledged the fiscal pressures own performance more effectively against the rest of the market. that had driven the government to reform housing benefit, but warned that benefit payments were a key concern for lenders contributing to the funding of social housing. “Over the years, the CML and its members have proved • Warned that plans to reduce from October the rate at which SMI is paid themselves to be responsible lenders and a powerful voice for from 6.08% to 3.63% would trigger social good. The FSA would do well to listen” mortgage payment problems for some Lourna Bourke, Citywire recipients.
15 arrears and possessions
an important role in helping borrowers At the beginning of 2010, our forecast The year began individually. And the government has was that 205,000 mortgages would end with an uncertain maintained a range of schemes both the year with arrears of at least 2.5% of to help avoid arrears and to provide the outstanding balance – an increase outlook for alternatives to possession for those on the 188,000 at the end of 2009. households for which – despite all We were also predicting that there mortgage arrears the help available – owner-occupation proves to be untenable. would be 53,000 cases of possession and possessions, during the year, higher than total of Everyone has been helped additionally 46,000 in 2009. which were by the persistence of interest rates at expected to rise by unprecedented low levels. This has given Government support borrowers a better chance of recovering the end of 2010. their finances following a temporary By the start of the year, the previous reduction in income, and lenders more government had implemented three But there was a high degree of scope to extend forbearance where key measures to help keep mortgage commitment from lenders, borrowers, borrowers have a realistic chance arrears and possessions in check: advice agencies and the government of recovery. to keep payment problems in check as • A mortgage rescue scheme, much as possible. The result has been that the combined under which vulnerable households efforts of lenders, borrowers, advice could avoid possession leading to Since the onset of the financial crisis, agencies and the government have homelessness, either through lenders have reinforced their efforts kept mortgage arrears and possessions mortgage-to-rent (under which the to ensure they extend forbearance to in check far more successfully than home-owner remained in the borrowers who fall behind with their in the last housing market downturn property but became a housing mortgage payments where it is possible in the early 1990s. At the beginning association tenant) or a shared to do so. In turn, many borrowers of the year, however, the outlook equity scheme (with a housing have shown a renewed commitment was challenging. Prospects for association loan reducing the home- to discussing their problems at an early economic recovery remained weak, owner’s debts in exchange for a stage with lenders, and to working with and whichever party won the general share of the property). them on an agreed plan to repay their election could not avoid taking firm arrears. Advice agencies have played action to address the fiscal deficit.
16 Support for mortgage interest Home-owner mortgage support
In his first Budget in June, the new Although home-owner mortgage chancellor cut the standard rate for support has had a more limited SMI from 6.08% to a new rate of impact than mortgage rescue, with 3.63% from 1 October. But both the fewer lenders participating and only a existing 13-week waiting period and small number of households entering the £200,000 capital limit for SMI were the scheme, it has made a wider extended until January 2012. contribution in encouraging households in difficulty to seek financial advice. We warned that the lower rate of As a result, a significant number of SMI payments would expose more borrowers will have been able to work borrowers to the risk of arrears and out with their lenders alternatives the prospect of possession because to home-owner mortgage support they were unable to recover their as a solution to their problems. The position. In 2010, more than 200,000 government has confirmed, however, people received SMI, more than half of the home-owner mortgage support whom were pensioners. will close in April 2011, as originally expected. Mortgage rescue Future prospects In July, the Department for Communities and Local Government In August, we revised downwards our (DCLG) published an evaluation of forecasts for the year to 175,000 cases the home-owner mortgage support of arrears and 39,000 possessions. In and mortgage rescue schemes, carried the event, the outcome was even better. out by the Universities of York and We eventually reported that at the end Heriot Watt. The government saw of the year 169,600 mortgages were both schemes as important in helping in arrears and there had been 36,000 people through the period of economic cases of possession – both lower totals recovery, with mortgage rescue playing than in 2009. a longer term role in providing support. But it was concerned about the But we are not confident that arrears • A home-owner mortgage support implications of funding the scheme, with and possessions will be countered so scheme, under which participating a net cost of £45,000 per household successfully in 2011. The outlook for lenders agreed to defer a receiving help. economic recovery remains weak, and proportion of interest payments planned cuts in government spending, for an extended period, with the Early in 2011, the government tax increases, higher inflation and the government underwriting part of announced it intended to cut the prospect of rising interest rates are the lender’s risk of loss. redemption price of the mortgage-to- all likely to bear down on borrowers’ rent option from 97% to 90% of the finances. Additionally, the government • Improved help through support property’s value. On behalf of lenders, has cut directly support for borrowers for mortgage interest (SMI), paid we had argued strongly in favour of through mortgage rescue and SMI, and at a flat rate of 6.08%, with the maintaining a redemption price nearer has confirmed its plans to wind up the waiting period for new claimants existing levels, and helped prevent a home-owner mortgage support scheme reduced from 39 to 13 weeks and more severe cut, to below 90%. early in 2011. the limit on eligible mortgage capital raised to £200,000. In 2010, mortgage rescue made a On behalf of lenders, we remain significant impact to reducing the committed to working with borrowers, number of cases of possession, with advice agencies and the government 1,700 households accepting an offer to minimise mortgage arrears and “The breadth of participants under the scheme. But we argued possessions in the challenging times ahead. and quality of conversation that the lowered redemption price would make it more difficult for firms at your stakeholder lunch to participate, and we do not share was impressive. I was the DCLG’s confidence that another wholeheartedly impressed and 2,500 borrowers will be helped by the scheme by 2013. In the light of cuts, much better informed as a the scheme risks proving less attractive result of my attendance” for all participants, including borrowers. Natalie Elphicke, Stephenson Harwood
17 conveyancing and fraud
Lenders and home-buyers rely on conveyancers, but there have been mounting concerns about fraud and professional negligence.
Most solicitors provide a competent, Lenders’ Handbook restricting choice for consumers. A honest and reliable service, and many comprehensive review is needed to of the better firms are associates of the In December, we re-launched the ensure effective regulation, protection CML. But measures to improve the Handbook, providing online instructions for clients and robust action against quality and reliability of legal services to conveyancers acting on lenders’ unscrupulous individuals and firms. remain a high priority. behalf. We introduced a number of improvements, including: Fraud Conveyancing quality scheme • an option for lenders to Fraud associated with conveyancing In October, in a move intended to update their individual services is at the heart of many raise standards and improve consumer instructions; and lender concerns. During the year, confidence, the Law Society of England we therefore continued to explore a and Wales announced the launch of a • a more intuitive layout, and solution that would reduce potential conveyancing quality scheme (CQS). better help and search exposure to fraud through greater use Firms seeking accreditation under the facilities. of electronic transfer of funds directly scheme would have to show higher between financial institutions. standards of competence and probity Insurance cover and compensation of staff, financial standing, supervision, Another problem is the shortage of safeguards and processes. The size and number of claims under police resources available for professional indemnity insurance (PII) investigating mortgage fraud. During We believe a key objective for the Law has made it difficult for some firms of the year, we continued to represent Society must be to ensure that the solicitors to obtain cover. In response, lenders in discussions with the National new scheme is robust. Over and above the Solicitors Regulation Authority Fraud Authority on the potential for requirements to keep records up to (SRA) has proposed removing from a dedicated police unit to combat date, the scheme will require resources its minimum insurance terms the mortgage-related crime. and rigour to stop unscrupulous and requirement that cover should apply to incompetent practitioners operating financial institutions, including lenders. in the legal profession, and remove accreditation where necessary. We argued that this proposal did not address the underlying problem of a In administering the CQS, the Law Society disproportionately large number of collects a considerable amount of data conveyancing claims. Reform of about solicitor firms that would help insurance arrangements may be lenders. We are continuing to discuss necessary, but should be matched by with the Law Society how this information tighter regulatory control, and the could be made available to lenders. targeting of problems including fraud and professional negligence that have Lenders continue to control increased claims. membership of their conveyancing panels. But if the new scheme proves We reminded the SRA that failing to be robust, many lenders are likely to provide insurance covering to require CQS accreditation as a lenders could lead to removal from minimum requirement for panel entry. conveyancing panels. Firms seeking “Whenever we have contacted to avoid their obligations by failing to Lenders may require home-buyers to pay premiums or disclose limitations the CML, we have always have separate legal representation for on cover should be more effectively been pleased with the conveyancing purposes. During the regulated and disciplined by the SRA. year, we therefore began to work on openness and responsiveness providing guidance for solicitors through Without adequate regulation and of each individual” a set of standardised instructions, similar insurance arrangements, the number Brian Shaw, Unisys to our Lenders’ Handbook. of conveyancing firms is likely to shrink,
1818 mortgage funding
The persistent shortage of mortgage funding that “CML staff are always helpful has afflicted the industry since 2007 continues to and knowledgeable, as well as polite and courteous” be a systemic failing of the UK lending market. David Bailey, Sprecher Grier Halberstam LLP
It is one of the main underlying causes changes that did not add up to a work with the Bank, the FSA and other of a market in which lending activity coherent whole, and would not authorities on improving the quality of remains concentrated in the hands of provide the market with the clarity information about securitised loans for only a few large firms, and in which a it needed for the future. investors, pressing for an approach that range of higher-risk borrowers – including delivers benefits that are proportionate many first-time buyers – are effectively • UK reforms were focused on bank to costs. Concerns for lenders include: excluded from the market. capital and liquidity, and mortgage market regulation, without sufficient • Overcoming the practical Throughout the year, we sought to emphasis on the funding problems. problems of different reporting highlight the effects of the funding standards for new and existing shortage on lenders and borrowers. • Government attention was focused securitisation of loans. We also explained that in 2010 looming on the challenges that banks and commitments to re-pay support larger building societies faced in • Agreeing reporting standards for extended by the authorities in the retaining retail deposits and raising large pools of loans that satisfy the aftermath of the financial crisis were senior unsecured bonds, but not needs of investors without imposing onerous standards on lenders. bearing down heavily on firms’ ability to on providing meaningful support expand lending capacity. for the markets in RMBS and • Agreeing reporting standards for covered bonds. covered bonds that meet the needs At the end of January, we published our of lenders, investors, the Bank and 39-page analytical paper, The Outlook for • The government needed a clear the ECB. Mortgage Funding Markets in the UK in approach for putting UK mortgage 2010-15. We noted that, in the preceding funding markets back on a • Ensuring that changes lenders may year, investor confidence had recovered sustainable footing, with measures need to make to systems as a result sufficiently to allow a small number of that balanced support for retail of reform are cost-effective and large lenders to re-commence issuing deposits, senior unsecured bonds, capable of being implemented over residential mortgage-backed securities RMBS and covered bonds, and for a reasonable time period. (RMBS) and covered bonds. This partial, different types of financial institution but real, recovery continued in 2010. But – banks, building societies and non • Ensuring that information needs the key messages in our January deposit-takers. for the Bank, other regulatory paper were: bodies, investors and credit In April, we ensured that UK lenders’ reference agencies are aligned, so • The closure of the Bank of views were represented in a joint that lenders do not have to meet England’s special liquidity scheme response with other representative different requirements from a range and the Treasury’s credit guarantee bodies to the Bank of England’s of interested parties. scheme between 2011 and 2014 consultation on extending eligible would leave a funding gap. This is collateral in the discount window facility In the latter part of 2010 and early unlikely to be filled either by the and improving the transparency of in 2011, the gradual improvement in growth of retail deposits or by information to help restore investor wholesale funding market conditions funding raised by lenders in the confidence in asset-backed securitisation. continued. This was a welcome capital markets. development that will, over time, make The work of the UK authorities was being mortgages more readily available and help • A deluge of regulatory reforms developed in tandem with a separate restore a more competitive market, with being drafted and implemented, initiative by the European Central Bank more lenders participating. internationally, in Europe and in the (ECB) to make the market for RMBS UK, risked creating a patchwork of work more effectively. We continued to
19 funding the rental sector
Lenders contribute to the funding of housing in all tenures, and in 2010 we continued to work for a legislative and regulatory framework that would encourage them to continue to do so. The election of a new government keen to pursue a new agenda of regulatory, welfare, planning and housing reform ensured that our work in this area was a key priority.
Social housing of housing associations would continue As the government developed its plans broadly as before. Consumer for comprehensive welfare reform, we In June, the new housing minister, regulation would be reactive, with continued to emphasise the need to Grant Shapps, announced a review intervention only where issues could ensure that the housing benefit system of the regulation of social housing. In not be resolved locally. underpins the cash flow to housing one of its earliest announcements, the authorities. government had revealed plans for a The announcement did, however, dramatic cut in the number of quangos. include an intention to abolish the When the government published its It said that its review of social housing TSA, with regulation transferring to welfare reform white paper in the would extend to include the role and the Homes and Communities Agency autumn, it acknowledged that this purpose of the existing regulator, the (HCA), although not until 2012. was a crucial requirement for lenders Tenant Services Authority (TSA). We welcomed the government’s investing in the sector. We will commitment to uphold a regulatory continue to press for a system of We worked closely with the review environment in which lenders would payment to landlords that retains the team at the DCLG. We presented continue to have confidence in housing confidence of lenders. information to government contacts on associations, and invest in them at the price and availability of funding for competitive rates. social housing, and argued that lenders would not continue to invest on such We will continue to work closely “I cannot fault at all the favourable terms in the sector unless with the DCLG, the TSA and the economic regulation remained robust, HCA during the period of regulatory level of interaction with the both for individual housing associations transition up to 2012. Our goal will CML. Always helpful and and for the sector as a whole. continue to be to ensure that regulation focuses on external and informative” The outcome of the review was market risks, as well as the solvency Alan Gottschalk, published in October, when the and financial management of individual Savills Property Solutions government confirmed that, in order housing associations. to maintain lender confidence and protect taxpayers, economic regulation
20 Planning reform and localism We disagreed with Treasury’s initial We will support and contribute to proposals, published in December 2009, the website, which is likely to include The government’s proposals for the that buy-to-let should be regulated by information on topics like legal and reform of social housing regulation the FSA. We argued that regulation of regulatory requirements for landlords, were outlined in the Localism Bill, buy-to-let mortgages would not address researching the rental market, and how published in December. The Bill also the main risk for investors of market the buy-to-let lending model works. contained proposals for reforming local failure, which stemmed from the decision decision-making, including the planning to invest rather than to borrow. We also began work on a draft guide system. We will continue to press for to good lending practice, likely to be planning reforms that help address When it published its response in published on our own website in 2011. the problems created by a shortage of March following its initial consultation, The guide will cover a variety of topics, supply of housing. the Treasury said it would re- including lenders’ responsibilities, the consider proposals for regulation of principles of buy-to-let lending, and The private rented sector buy-to-let lending. And following good practice in assessing the property the general election in May, the and affordability for borrowers. As well as funding owner-occupation coalition government indicated that, and social housing, lenders contribute if the industry did more to provide to the provision of private rented information and guidance for landlords, accommodation, largely through the it may not feel a need to extend funding of buy-to-let mortgages. In regulation to include buy-to-let lending. 2010, this was one of the few areas of growth in the mortgage market, with Since then, we have worked with the a 10% increase in the number of loans National Landlords Association and advanced and a 22% rise in buy-to-let other interested parties on a practical gross lending. plan to provide more information and guidance. This is likely to result in 2011 With restricted access to home- in the launch of a website supported ownership for potential first-time by a number of interested parties buyers, the rental market remained providing guidance, primarily aimed at buoyant – and is likely to continue to novice landlords. be so in the coming years. We will continue to work for a sustainable buy- to-let sector, and an approach to the regulation of mortgages and provision for tenants that does not deter either lenders or landlords.
21 the media environment
In 2010, the mortgage industry was essentially In presenting these messages consistently and persistently over stuck on a slow path to recovery that is likely the year, we made steady progress in persuading journalists and to last for several years. Media sentiment about commentators that neither the Bank of the broad direction of the mortgage market England base rate nor published swap rates should be interpreted as a proxy was therefore not as volatile as in recent years. for mortgage costs, and that factors But the media environment was still challenging. affecting the cost of funds and product pricing – and the relationships between them – were complex Some of our key goals in 2010 were Some of the key messages we set out to seek to dispel media myths about to communicate were that: Aspirations to home-ownership features of the market, a task that required evidence rooted in sound • funding remains in short supply Data from the English Housing Survey data, robust analysis that would stand and had re-priced upwards more showed that a trend that had become up to scrutiny, and persistence. Issues quickly than income from the established over the last seven or eight we sought to address included: business on lenders’ books, much years – the first significant decline in of which had been originated at home-ownership since the First World • the relationship between interest fixed rates; War – continued in 2010. rates, swaps, funding costs and mortgage pricing; • negative margins on some existing In England, 67.4% of people are now mortgage business had to be owner-occupiers, compared with 70.9% in • the reasons behind the first offset elsewhere; 2003. A key question for many journalists significant decline in home- and commentators, however, was ownership in 100 years; and • provisioning for anticipated credit whether this reflected a long-term decline losses had risen; in aspirations to home-ownership or the • factors determining mortgage cumulative effects of years of stretched supply and demand – and the • lenders were experiencing lower affordability for key groups of buyers. relationship between them. returns on capital, partly as a result of regulatory reform; and We commissioned a YouGov survey Rates, funding costs and on attitudes to home-ownership and mortgage pricing • the cost of strengthening the published the results in September. These liquidity of firms had a significant showed that long-term aspirations to In a series of press briefings, releases, impact on their operating costs, home-ownership were stronger than ever. and articles – in our own newsletter over and above increases in We reported that 85% wanted to be and elsewhere – we sought to confront funding costs. home-owners in 10 years’ time. The last media misunderstanding about rates, time the survey was undertaken, in 2007, funding and mortgage pricing. the proportion was 84%.
22 Stop press!
At the end of April 2011, the results of MORI’s survey of 191 personal finance journalists were published. For the third year running, our press relations were rated the best out of 16 representative bodies surveyed, with a net favourability rating of 50%. Among national journalists, our net favourability rating was 64% – 20 percentage points ahead of our nearest rivals.
The poll also ranked us sixth for familiarity, with 63% knowing the organisation very or fairly well. On favourability, we were ranked joint third, with a net score of 35%.
But the survey did show a decline different ways depending on the type We also undertook 51 broadcast in short-term aspirations to home- of institution, size and access to funding. interviews on a variety of topics and ownership, particularly among younger A complex range of factors affected through a wide range of outlets including adults. Among those aged 18-24, for the supply of mortgages overall, and BBC television and ITV news, BBC Radio example, only 42% wanted to be levels of activity by individual firms. Four’s Today programme and You and owner-occupiers within two years. Yours, BBC Radio Five Live and World Over 10 years, however, people in As well as analysing supply issues, it was Service, Sky News, CNBC, and BBC and this age group had the highest home- important for us to try to explain how commercial local radio stations. ownership aspirations (88%). developments in 2010 affected demand for mortgages. As the year progressed, We published 24 issues of our The survey findings helped inform our commentary sought to shed light newsletter, CML News & Views, a media view that aspirations to on how consumers were affected by containing articles on a wide range of home-ownership in the UK remained evolving prospects for economic subjects. These resulted in numerous strong, and the decline in owner- growth, employment, inflation and a follow-up articles in national occupation was largely explained by range of other factors. In November, newspapers and trade outlets, and the affordability of a deposit for some the arguments were distilled in an helped inform television and radio buyers. Where short-term aspirations article we published in our newsletter coverage of mortgage market issues. to home-ownership had declined, attributing the decline in lending to We also published a wide range of this essentially reflected a realistic the complex relationship of factors articles and comment for external assessment among younger people of affecting both the supply of – and publications during the year. their likelihood of becoming owner- demand for – mortgages. occupiers within two years. Media activity Mortgage demand and supply “The organisation, under Overall, the media environment Coogan’s leadership, has Throughout the year, we sought to remained busy and challenging. become known for its address media concerns about low levels of lending and the concentration During the year, we issued 64 press authoritative stance, and of activity in the hands of a few large releases on a variety of subjects. As journalists have appreciated firms. A key objective was to persuade well as releases containing our regular the media to acknowledge that there market data and commentary, we an unusually enlightened were wider pressures on firms than a covered a range of topics, including press office, which has simple unwillingness to lend. regulatory developments, the funding of social housing, support for borrowers done an excellent job in We sought to highlight a series of in difficulty, mortgage pricing and terms of communications constraints imposed on firms by the prospects for building societies. and briefings” shortage of funding and regulatory requirements, and to explain that Rosalind Renshaw, Introducer Today individual lenders were affected in
23 political developments
With a general election due in the spring, it was clear from the outset that 2010 would be a busy year of political activity.
The poll in May provided a neat Mortgage market briefing: Essential • wrote to all the relevant new dividing line for our work, with the issues for government, outlining our views ministers, special and party first part of the year focused on on key policy questions, and distributed advisers and key contacts in 10 seeking to influence party policy and it to Parliamentary candidates. Our Downing Street to introduce manifestoes on matters affecting ‘manifesto’, setting out our views on key ourselves and highlight key issues; mortgage and housing markets. After mortgage and housing market issues, was the election, we sought to build on published in Mortgage Finance Gazette, • produced a briefing paper for all our relationships with both new and and also distributed to candidates. newly elected MPs, providing existing government, opposition and Michael Coogan gave an interview essential mortgage market data Whitehall contacts. outlining our views to the Parliamentary and explaining our views on website, ePolitix, and we contributed to topical issues; Pre-election activity the financial services election report published by the Chartered Insurance • distributed copies of our From the beginning of the year, we Institute. publication, Housing finance at a continued the work of identifying glance, to all MPs, peers and the key prospective Parliamentary After the election relevant Parliamentarians; candidates in the forthcoming election, an activity we had begun in 2009. Following the election, we embarked on • began to construct a database of Our goal was to pinpoint those a busy schedule of activity, building our MPs’ policy interests so that MPs defending safe constituencies, relationship with new ministers, advisers we could target those likely to be candidates likely to gain seats and those and other key Westminster contacts. concerned with mortgage and with a relevant background or interest We also sought to maintain relations with housing issues; in mortgage or housing market issues. opposition figures, and with backbench MPs. We produced a concise document, • re-launched our series of briefing In the aftermath of the election, we: lunches for backbench MPs from each of the three main political parties.
24 During the year, we briefed ministers Much of our most important lobbying Survey findings and other political contacts on a wide work was on the FSA’s mortgage market range of topics, including the mortgage review, and proposals emerging from it. We fared well in a survey undertaken market review, funding issues, proposals We undertook a series of briefings and by Populus to assess the attitudes of for verifying borrowers’ income,support held other meetings, and targeted other MPs to 10 different financial services for mortgage interest and other benefits, information at key MPs and contacts. trade bodies, the Bank of England and policy priorities for the home finance Legislation on which we lobbied on the FSA. The survey showed that 59% forum, affordable housing, the private and behalf of lenders included the Mortgage of MPs knew our organisation well or a social rented sector, ‘green deal’ measures, Repossession (Protection of Tenants), Fire fair amount, with only the Bank (91%), conveyancing and support for borrowers Safety (Protection of Tenants), Secured the FSA (86%) and the British Bankers’ in difficulty. Lending Reform, Energy, Localism and Association (63%) better known. Welfare Reform Bills. Ministers with whom we held briefing More than one-third (36%) had a meetings included the housing minister We provided evidence for a number of favourable view of us, placing us third Grant Shapps, financial secretary to the select committee inquiries, including the behind only the Bank (70%) and the Treasury Mark Hoban, Parliamentary Treasury committee scrutinising mortgage Association of British Insurers (43%). under secretary of state for welfare arrears and access to finance, competition reform Lord Freud, justice minister Ken and choice in the banking sector, and Clarke, and minister of state for energy financial regulation, and the work and and climate change Gregory Barker. pensions committee looking into housing Among key opposition figures we met benefit changes. were the shadow housing minister Alison Seabeck and financial secretary We kept MPs up to date with our views Chris Leslie. on a range issues, distributing four editions of Housing Finance at a glance during the We also encouraged our political contacts year, as well as our annual report. to communicate their views to us, and to members. In January, the former We also produced factsheets on regional financial services secretary, Lord Myners, housing market issues for those elected addressed senior executives from to devolved administrations and for member organisations on responsible Westminster MPs with constituencies in and sustainable lending. And, in March, Scotland, Wales and Northern Ireland. the former Liberal Democrat shadow As well as proactively lobbying and chancellor Vince Cable wrote an article informing MPs, we provided information for our newsletter, CML News & Views, on on request, often for debates, the tabling responsible lending and spoke on at our of Parliamentary questions or dealing with conference on this topic. constituency inquiries.
“The coalition owes a huge debt of gratitude to the CML. Without its robust evidence, the government would have been less likely to recognise the damage the mortgage market review will inflict on housing and mortgage markets, with the inevitable knock-on on the wider economy” Ray Boulger, John Charcol
25 adding value for members and associates
With mortgage market activity flat, and lending heavily concentrated in the hands of a small number of firms, it was a challenging year for many lenders – and a difficult one in which to develop our commercial activities.
We responded by putting together a programme of Once again, our flagship event for interpreting, debating conferences and seminars focused on the key issues and and clarifying views on the widest range of issues was the priorities for lenders in 2010. The FSA’s ongoing mortgage mortgage industry conference and exhibition (MICE) in market review created an uncertain regulatory environment, November. In 2010, we moved to a new venue, the Business and there was a strong appetite among members for our Design Centre in Islington, which proved popular with events explaining and interpreting developments. Despite speakers and delegates, and provided more space for the the challenging business environment, the popularity of these growing exhibition associated with the conference. events helped maintain income from delegate fees in 2010.
26 “We have a great dialogue with CML staff, and the service is always first class” Phil Broadhurst, Hay & Kilner
Chaired by the well-known BBC The annual lunch at the Hilton Hotel in We also ran a series of training courses, financial services journalist and Park Lane, London, was again a popular addressing subjects relevant to lenders presenter Declan Curry, the conference springtime social and networking in 2010. Topics included treating again proved popular, attracting 260 opportunity, attracting 600 guests. customers fairly, mortgage fraud, delegates. The conference hall was the dealing with mortgage arrears and focal point of a series of informative New additions to our programme of learning the mortgage business. and interesting presentations and events in 2010 included two ‘future debates, and the event provided an housing’ conferences. These were Finally, in conjunction with Unicorn excellent opportunity for networking intended to cover a wider remit than Training, an experienced e-learning and meeting potential new business mortgage finance, providing an solutions provider, we ran a series of partners and suppliers. opportunity to focus on wider housing online courses for members to deliver issues. Both were well received by cost-effective staff training. The range In a break with tradition, we held our members and other delegates, with of courses in 2010 included arrears annual dinner on a separate day to the the event in November providing a and possessions, an introduction to the conference in 2010. Hosted in platform for unveiling the findings of Banking Conduct of Business sourcebook December in a specially created venue in our comprehensive research into the and Payment Services Regulations, and the gardens on Victoria Embankment, the impact of the MMR. other FSA regulatory requirements. dinner attracted 1,000 guests and once again proved to be our most popular event of the year.
27 strategy and finances
“You have done an amazing job advising, guiding and defending the industry in 2010. Much of what I do would be more difficult without the quality resources the CML provides” Barry Blackshaw, HSBC Bank
“The benefit of your in-depth mortgage service continues to dig to the nub of issues affecting our business. Please continue fighting our corner as a small building society” Peter Bell, Holmesdale Building Society
28 In May, we prepared a draft three-year strategic plan, covering our activities until the end of 2013.
The plan, which will be updated on a We continued the review of our • achieved 42% of our longer rolling three-year basis, was introduced governance arrangements that began in term goal of building cash reserves in 2011 after extensive consultation 2009. After consulting with members, a equivalent to 11 months’ regular with members. It incorporated our new constitution for the organisation was outgoings (excluding rent, which is immediate plans over the coming 12 agreed at an exceptional general meeting covered by a rental deposit). We agreed with members that progress months, and more general goals for the in July. This strengthened our corporate towards this target would be next three years. governance and clarified members’ adjusted this year to help meet the liabilities in relation to the organisation. significant one-off costs of our At the same time, we agreed a financial MMR research programme in 2010. plan in support of our strategic Finances objectives. This incorporated a higher Staff developments target for cash reserves, but our over- The challenging environment in the UK riding aim was to ensure that our plans mortgage market in 2010 prompted a There were two significant staff remained affordable based on only number of fresh member and associate announcements. First, our head of policy modest increases in subscriptions. resignations, which were anticipated in Jackie Bennett was awarded an OBE for our budget for the year. However, we services to the financial services industry in We also set ourselves a long term also recruited four new members in the Queen’s birthday honours list in June. target of re-establishing our market 2010 – Aldermore Bank plc, Metro We extended our congratulations to coverage at 98%. Our current market Bank plc, Precise Mortgages and UBS Jackie, who collected her award in a Ltd – as well as 18 associates. representation remains high for a UK ceremony at Windsor Castle in October. trade body at 94%, but has declined in recent years following resignations In 2010, we also achieved progress on Then, in February 2011, Michael Coogan in the aftermath of the financial crisis, three broad financial goals agreed by announced that he was standing down as when firms were forced to take our members. During the year, we: director general, a post he has held since difficult decisions to manage cost the CML became an independent body pressures on their businesses. • earned 42.2% of income from in 1996. Michael had decided that, having non-member subscriptions, successfully navigated the organisation The plan reinforced that our purpose achieving the target of 35% to through the challenging period of the would continue to be to represent UK 45% of income; credit crunch and its aftermath, and helped re-establish it on a stable and lenders offering residential mortgages successful course, he wanted to seek a to individuals. We will continue to • earned 32.3% of net income from fresh challenge. We began the process non-member subscriptions, provide the core trade body functions of recruiting a new director general to of representation, lobbying, and achieving the target of between succeed him in August 2011. information and training, and to seek 25% and 35% of the net income; and to develop our services to ensure they match members’ needs.
29 members and associates
Members New Life Mortgages Ltd Lapithus Servicing LLP David Stewart (as at end of March 2011) North Yorkshire Mortgages Ltd Legal & General Assurance Society Coventry Building Society Northern Bank Ltd LPC Law Keith Street Affirmative Finance Ltd Northern Rock Asset Management plc (NRAM) LSL Property Services plc Kensington Ahli United Bank (UK) plc Northern Rock plc Matthew Arnold & Baldwin Nigel Terrington AIB Group (UK) plc Oakwood Homeloans Ltd Mazars LLP Paragon Mortgages Ltd Airdrie Savings Bank Ocean Money (II) Ltd Milliman Colin Walsh Aldermore Bank plc Paragon Group Morisons LLP, Solicitors Lloyds TSB Mortgages Allied Irish Bank (GB) Platform Move with Us Asset Management Bob Young Amber Homeloans Ltd Precise Mortgages Movemakers Ltd CHL Mortgages Aviva Equity Release UK Ltd Principality Building Society N4 Solutions - 1st - The Exchange Bank of China (UK) Redstone Mortgages Ltd Optima Legal ______Bank of Cyprus UK Rooftop Mortgages Ordnance Survey Bank of Ireland Saffron Building Society Oriel Securities Ltd Staff of the CML Bank of Scotland Santander UK plc Payplan (as at the end of March 2011) Barclays Scottish Building Society Portillion Basinghall Finance plc Scottish Widows Bank plc PricewaterhouseCoopers Michael Coogan Birmingham Midshires Skipton Building Society Registers of Scotland director general Bradford & Bingley plc Stroud & Swindon Building Society Rosling King LLP Sue Anderson Bristol & West Swansea Building Society Savills head of member and external relations Britannia Swift 1st Shoosmiths Solicitors Claire Ashby Cambridge Building Society The Co-operative Bank plc Spicerhaart Ltd events and membership officer Central Homeloans Ltd The Mortgage Works Sprecher Grier Halberstam LLP Tamsin Askew Cheltenham & Gloucester plc The One Account Ltd Standard & Poor’s Ratings Services administrator/junior press officer Cheshire Building Society The Royal Bank of Scotland plc Stephenson Harwood Anna Baldwin Cheshire Mortgage Corporation Tipton & Coseley Building Society Stewart Title Ltd human resources manager Cheval Property Finance plc Tiuta plc Target Group Ltd Jackie Bennett CHL Mortgages Topaz Finance plc Taylor Wessing head of policy Chorley & District Building Society UBS Ltd Tesco Personal Finance plc Jennifer Bourne senior policy adviser Church House Trust (a trading name of Virgin Bank Ltd) UCB Home Loans Corporation Ltd The Boston Consulting Group Ltd Clydesdale Bank plc Ulster Bank Ltd Thomas Eggar LLP Sherri Brown Counties Home Loan Management Vernon Building Society TLT Solicitors marketing and member relations officer Coutts & Co Yorkshire Bank Tucker Turner Kingsley Wood & Co LLP Suzanne Campbell Coventry Building Society Unisys facilities manager Credit & Mercantile plc ______Vertex Financial Services Steven Castledine Crocus Home Loans Ltd Water Industry Con29DW Property executive and senior policy personal assistant Darlington Building Society Associates Information Network Jayne Chichester DB UK Bank Ltd (as at end of March 2011) Western Mortgage Services Ltd press officer Derbyshire Building Society Wragge & Co LLP Bernard Clarke Derbyshire Home Loans Ltd Aberdein Considine & Company Xit2 Ltd communications manager Direct Line Financial Services Ltd Accenture UK Agi Donovan Dudley Building Society Acenden Ltd ______senior events organiser Dunfermline Building Society Allied Surveyors Diligence Ltd Mark Finnie Ecology Building Society Aon Benfield Executive Committee head of corporate services E-Mex Home Funding Ltd Arch Insurance Europe (members in 2010) Pat Gauntlett Engage Credit Ltd Assurant Solutions statistical assistant First Direct Bank Autonomous Research LLP Matthew Wyles Susan McGuinness First Trust Bank BancTec Ltd Nationwide Building Society accounts and facilities administrator Furness Building Society Barlow Robbins LLP (chairman) Natalie Mlinar GE Money Home Lending Ltd Callcredit Ltd Colin Shave policy team personal assistant Godiva Mortgages Ltd Castle Trust GE Money Home Lending Ltd Peter Morton Halifax plc Cheyne Capital Management (UK) LLP (deputy chairman) senior policy adviser Hampshire Trust plc Clayton Euro Risk Ltd Martijn van der Heijden Bob Pannell Harpenden Building Society Conveycentric Ltd HSBC Bank plc chief economist HBOS plc CoreLogic Solutions Ltd (deputy chairman) Liz Porter Hinckley and Rugby Building Society Countrywide Richard Banks senior information technology advisor Holmesdale Building Society Crown Mortgage Management Bradford & Bingley plc Caroline Purdey HSBC Bank plc Datamonitor plc David Cowie market and data analyst ING Direct N.V. Deloitte LLP Manchester Building Society Matt Smith Intelligent Finance Detica NetReveal Andrew Gerber senior policy adviser JPMorgan Chase Bank, N.A. EPS Castellain The Royal Bank of Scotland plc Catherine Spence Kensington Mortgages Ernst & Young LLP Andrew Golding events manager Leeds Building Society Eversheds LLP Saffron Building Society James Tatch Lloyds TSB Mortgages Experian Ltd Andy Gray analytics manager Lloyds TSB Scotland plc First Title plc Barclays Rob Thomas LV Equity Release Ltd Fitch Ratings Ltd Gary Hoffman senior policy adviser Manchester Building Society Genworth Financial Northern Rock plc William Thomson Market Harborough Building Society Goldsmith Williams Solicitors Michael Joyce commercial manager Market Harborough Mortgages Ltd Grant Thornton UK LLP Bank of Ireland Home Mortgages Ltd Michelle Vosper Metro Bank plc Hamlins LLP Vim Maru public affairs manager Monmouthshire Building Society Hay & Kilner Santander UK plc Carol Wint Morgan Stanley & Co International plc HML Moray McDonald information technology advisor Mortgage Express Ltd Jeffrey Green Russell The Royal Bank of Scotland plc Nick Wood Mortgage Trust plc JLT Lending Risk Solutions Stephen Noakes senior policy adviser Mortgages plc Jorden Salata Lloyds TSB Mortgages National Counties Building Society Joseph & Hepple-Wilson Ltd Mark Parsons National Westminster Home Loans KPMG LLP (UK) Barclays Nationwide Building Society Landmark Information Group Ltd
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