Thursday, February 12, 2004

Gilligan's Island

Note: I forget who said everything in the papers was true except for the stuff you know about, but in that spirit I've taken it upon myself to dissect one of the BBC's latest effusions. If you think the BBC is God's own company or the ins and outs of financial services make you want to carve your eyes out, you may want to skip to a post where I resume my normal program of drunken ranting.

The BBC is justifiably notorious for tilting left on political issues, but just as annoying is its soft Liberalism - the blind acceptance of Liberal cultural prejudices as unchallengeable truths, together with its prissy, metropolitan myopia, eternally unable to see that what's sauce for the BBC employee goose may not be sauce for somebody else's gander. Both traits were on full view during tonight's edition of The Money Program.

You might think we hardly need Moulder & Scully to explain house price inflation, what with changing patterns of family life, mass immigration, the blighting of large sections of our cities by crime and, above all, the fact that we simply aren't building enough houses. Take this excerpt from a National House Builders Councilsponsored report:

Since the end of the Second World War, new housing construction has fallen in Britain. In the private sector, in the sixties, new housing starts averaged more than 200,000 units per annum; in the seventies and eighties, starts averaged around 160,000; in the nineties the average fell to approximately 145,000 units (although it is true that construction has been closer to the seventies and eighties average in the last four years). Even taking account of the fact that the type of dwellings constructed over the period has changed considerably, the figures are striking. Whereas most output variables in the economy, such as GDP, tend to rise over time, this has not been the case with housing starts.

But, no, Auntie knows who's really to blame for people being priced out of the market: it's all a huge conspiracy, see. The lenders and the intermediaries are conspiring to inflate house prices by giving people bigger loans than they should. Needless to say, the program started with the Beeb trying to play on our heartstrings with the case of an ordinary, everyday family - the very people the BBC usually sneers at - who've been priced out of the market. The program itself was supposedly a follow-up from one last year - fortunately, it didn't matter if you'd missed that one since the program spent an inordinate amount of its thirty minute run replaying footage from the previous edition.

If you were starting to suspect the Beeb had failed to stock up sufficiently at 'EvidenceMart', you weren't going to be dissuaded by the BBC rolling out its first new witness, a Independent Financial Advisor who freely confessed that fraud was rampant in the industry and everyone was dirty. So why did he feel this sudden urge to confess all ? Well… actually, he'd been busted by the regulators and his sole defence was that 'all the other kids were doing it, miss'. Pathetic, but not nearly as much as the BBC trying to indict a whole industry on the evidence of a self-confessed fraud.

The supposed mechanism for this dastardly deed was 'self-certification' mortgages - mortgages where the lender does not require proof of income from the borrower. The BBC was anxious to convince us that bar maids were putting down their income as £100 000 pa and thereby scoring massive loans, which in turn distorted the market. After all, who except a fraudster would have trouble proving their income ?

Lots of people, actually - just not the people BBCoids usually deal with. Teachers who provide private tuition on the side, shop assistants who do casual bar work at night, computer geeks who run a computer-building business part-time and (most of all) the self-employed. In short, just about anyone who has income sources other than a plain vanilla 9-5 job. What annoys most about the BBC is not that they did not ONCE mention during the whole program that there are perfectly good reasons for someone to want to self-cert, but the near-certainty that this collection of Metropolitan snobs really don't think that folks like these shouldn't be allowed to buy houses anyway: leave house buying to people with real jobs, like being a drone in the bowels of a large state-funded broadcaster.

Perhaps sensing that Fraud Boy was not an ideal witness, the BBC then moved onto other lines of evidence. Documents produced by lenders were shown, never actually read or summarised, just single words and phrases ominously highlighted without even a hint of context. A writer from what was described as the 'lender's top trade magazine' was wheeled on to claim it's all a vast conspiracy. Leaving aside the question of whether Mortgage Analyst would have been the 'lender's top trade magazine' if he hadn't drunk hefty gulps of Kool Aid, Mr Context was - again - not in the building. What do other writers on MA think ? What do the staff at Mortgage Strategy, Mortgage Solution or Mortgage Introducer - to name but three - think about it ? And how did one journalist interviewing another journalist get to be investigative journalism anyway ?

The program thrashed about desperately trying to cast the industry as shady. The fact that the industry is self-regulating was held up as, in and off itself, proof that it was out of control except… a few minutes later the narrator admitted that, yes, indeed, come Halloween (appropriately) the industry will fall under the jurisdiction of the communist vampires at the Financial Services Authority. At the time of the original program, the Council of Mortgage Lender's had estimated self-certs as only 1% of the market. The presenter was the very model of righteous indignation as he confronted the CML's chief with the news that the latest FSA figures show that, actually, 6% of mortgages are concluded on a self-cert basis. The fact that, at that time, the BBC was claiming that lax regulation in this 6% was enough to turn the whole market to soup went unremarked.

Nevertheless, in the intervening period even the Beeb must have had qualms about claiming that a fraud affecting a sector that accounts for less than one in sixteen mortgages could distort the whole market. Suddenly, two-thirds of the way through the focus shifted and self-certs were joined on the enemies list by 'fast-track' applications. In a fast-track application, in order to speed things up, the lender may not require proof of income but (crucially) retains the right to ask for that evidence. Needless to say, when the only other intermediary to be featured claimed that approximately '15 to 30%' of his company's applications were fast-tracked, this was immediately described as 'up to 30%' and ever after as 30%. Equally predictably, this was taken, on no apparent evidence at all, as being representative of the industry as a whole.

Yet, again, a little thought suggests there are perfectly benign reasons why fast-track doesn't equal fraud. If a teacher claims an income of 20K or a Detective Sergeant claims 25K, then there really is no need to check. Equally, the fact that fast-tracks require a deposit of at least 25% would tend to move it outside the sphere of first-time buyers anyway.

And that's really the thing: throughout the program the BBC discussed mortgages as though all lending was in the context of house buying. Ahem - most lending is in the context of remortgages, where the householder simply changes lenders to get a better rate, raise capital or whatever. Naturally, this is where 'fast-tracks' really come into their own, in the relatively straightforward case of a straight swap from one product to another. The BBC can use all the spooky music it wants, but remortgaging doesn't have the slightest effect on house prices.

The only lender's representative to appear on camera was from the Portman Building Society. He appeared anxious to point out the dangers of fast-tracking applications without asking for proof of income. No doubt, he'd have pointed out the dangers of self-certs - if the Portman offered them, but fortunately, the Portman leaves this market to less reputable operators such as The Mortgage Works. Perhaps the Portman would like to raise the question of TMW's dubious lending practices with its parent company ?

What really sticks in the throat about all this though is the unstated assumptions underlying it all. Of course, there is more potential for fraud where self-certs are concerned - which is why companies like TMW charge more than companies like the Portman for similar products. But companies are happy to assume the risks, people need these products and even the FSA hasn't ordered anyone to be shot yet. In short, the market works. Yet here comes the BBC with a full load of 60s cliches: Big Business is fixing the markets, The Man is seducing defenceless peasants into taking on too much debt, left to their own devices ordinary people are lying scum, Big Government should immediately fly in and regulate the Hell out of everything, we're all going to die.

Yes, some people have taken on too much, and they’ll suffer if rates keep climbing. But, the alternative is to shut a large section of the public out of the housing market permanently while imposing extra costs and delays on those who still can get mortgages.

Still, even that misses the true irony of the whole exercise. Here's the BBC in high dudgeon: lender's don't always require people to provide documentary evidence that they're telling the truth which means everyone is suspect. It's something of a change of attitude to how they deal with their own staff. What if Andrew Gilligan wanted a mortgage ?

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