Richard Harvey says it’s time for some devious psychology in the mortgage market
If you believe your fellow man is, by and large, an honest soul, then prepare for the housing market revival to come to a juddering halt.
From the start of April, borrowers applying for a new mortgage will be asked the sort of questions that make an appointment with the dentist for root canal treatment seem a gentle, non-intrusive procedure.
Lenders are now subject to rigorous new rules, enshrined in the City regulator’s Mortgage Market Review and designed to ensure borrowers really can afford monthly repayments – particularly if, as predicted, interest rates start shifting upwards.
We’re All Against Sin….
On the face of it, this seems perfectly sensible, and an antidote to banks and building societies dishing out mortgages to those most likely to do a runner when times and circumstances change.
However, it is reported that some building societies are taking client interrogation to extremes, even asking for details of expenditure on items such as personal grooming, holidays and furniture. Some say this level of cross-examination could result in 67,000 otherwise acceptable mortgage applications being rejected over the next three months – instantly halting the revival of the housing market.
But here’s the rub. Will Mr and Mrs Upwardly Mobile really tell the truth when it comes to declaring how they spend their disposable income? Or will building societies apply the same kind of “yeah, right!” cynicism that doctors use in gauging whether patients are being honest about how much exercise they take?
If so, lenders might usefully offer this kind of multi-choice questionnaire to get to the real truth behind borrowers’ future spending plans…..
Q1 You are celebrating your birthday with friends at a posh restaurant. As the dessert menu circulates, the wine waiter whispers in your ear that they have some splendid Chateau d’Yquem in the cellar for just £390 per half bottle. Do you….
1. Say “don’t be ridiculous, that’s equivalent to my monthly mortgage payment”;
2. Ask the waiter if he has something a little less exotic, perhaps a bottle of Lambrusco;
3. Enquire of your companions: “Anyone fancy a rather decent sticky?”
Q2 It’s been a difficult few months, and you want to get away on holiday. Do you….
1. Log onto The Sun’s website to see if they’re still offering 25 quid long weekends at Pontins;
2. Decide that anywhere on the Continent seems a good bet, now the Euro has fallen to an appropriately humble level;
3. Book a ruinously expensive cruise, but compromise by only going for a week and, well, you did ask for an inside cabin instead of the Presidential Suite.
Q3 You want to extend your mortgage to improve your existing home rather than buy a new one. Do you……
1. Buy a new three piece suite with uppy-downy footrests on ‘buy now, pay later’ terms;
2. Check if B&Q have any sale deals going on flat-pack kitchens;
3. Say you want the money for a modest conservatory, but actually intend installing an en-suite jacuzzi and home cinema in little Jocasta’s bedroom.
It strikes me that if the decision to grant a mortgage depends on applicants not telling whoppers, building societies need to consider investing in a few lie detectors.
Float Like a Butterfly
The great Muhammad Ali didn’t just rely on those lightning jabs and will-o’-the-wisp feet to make him the best boxer the world has ever seen. He also had the equally inspired Angelo Dundee by his side.
It was Angelo who massaged Ali’s aching shoulders between rounds, applied the liniment and delivered exhortations to audacity and endeavour.
It’s that kind of inspirational encouragement IFAs will have to summons up this month as savers seek salvation from the footling returns offered by the latest clutch of ISAs (although forget the shoulder massage and liniment – your clients could get the wrong idea).
In particular, what do you say to the couple in their 60s, who have managed to tuck away a few quid to invest in this year’s ISAs, but whose attitude to risk is akin to that of the Cowardly Lion en route to Oz?
Facing the prospect of sub-2 percent returns from a Cash ISA, they could be persuaded to step onto the giddy carousel that is a Stocks and Share ISA, in the hope that returns should at least keep ahead of inflation.
However, given that cautious investors are precisely that – cautious – then methinks IFAs are going to have their work cut out.