CML: Set up to fail

The Citizens Advice report, Set up to fail, is too simplistic in its criticisms of the lending industry, according to the Council of Mortgage Lenders.

The vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority. These require lenders to seek possession only where all other reasonable attempts to resolve the position have failed.

It should come as no surprise that those lenders specialising in lending to borrowers with past credit problems have a higher experience of default among their borrowers, and that they are pro-active in seeking to deal with arrears as soon as they arise. But the allegation that they default too quickly to court action is an assertion that is not borne out by the typical practices and processes of specialist lenders.

In fact, the CAB evidence is based on a very skewed sample of borrowers. First, those who seek the advice of CABx are, by definition, those who have not managed to reach a mutually satisfactory arrears management plan with their lender. Citizens Advice itself also points out that the borrowers covered by the cases in this report typically have lower incomes than the national average. This is not typical of borrowers in the non-conforming sector as a whole, and it is not reasonable to assume that the CAB clients represent typical borrowers in this sector.

Overall, the level of mortgage arrears and possessions in the UK mortgage market is extremely small. The CML forecast of 30,000 first-charge possessions this year is in the context of 11.8 million mortgaged households, and the individual case studies cited in the report are just a tiny fraction of UK borrowers. The Citizens Advice accusations are therefore disproportionate, taken in the context of the market as a whole.

However, the CML agrees that there is a case for FSA regulation, that at present only covers first mortgages, to apply across both first charge mortgages and other secured loans. Many of the cases in the report relate to second charge lending, which is not regulated by the FSA.

The CML also agrees that the government should improve the safety net available to borrowers, especially those who suffer reduction of income, to reduce the imbalance in the treatment of owners and tenants. The current provision of Income Support for Mortgage Interest, which incorporates a nine-month waiting period even for those who are eligible to claim, is woefully inadequate.

And the CML has already publicly joined with Citizens Advice and Shelter in calling for the regulation of sale-and-leaseback schemes.

CML director general Michael Coogan commented: " Citizens Advice has taken a sensationalist tone in this report, which risks throwing the baby out with the bathwater. In fact, sub-prime mortgages give people a way to rehabilitate their finances and are important in a financially inclusive mortgage market.

" This is a pity, as we agree with many of the underlying policy recommendations, particularly about the need for government to improve the woefully inadequate public safety net for home-owners who fall into difficulties.

" It is vital to recognise that the overwhelming majority of mortgage borrowers are meeting their payments in full and on time. This report is in no way typical of the vast majority of cases where lenders work constructively with borrowers to get them over periods of financial difficulty and keep them in their homes."