Putting out the fire with gasoline

Emiled in by Lola, from FT Adviser:

The mortgage market needs more flexibility to help young people onto the property ladder, the Financial Conduct Authority has stated.

In its discussion paper on intergenerational differences, published yesterday (May 2), the regulator stated the working ways of ‘millennials’ — those between 23 and 38 years old — meant fewer young people were able to prove to lenders that they could afford a mortgage policy. It said those with less reliable and stable sources of income, such as self-employment, zero-hour contracts or agency work, found it harder to pass standard affordability assessments.

The FCA also pointed out that there was more movement between the workplace and further education as young people tended to join the labour market, go back into education, then enter the labour market again later. This required greater flexibility in the mortgage space, the City watchdog stated.

The FCA also noted that a steep rise in house prices compared to wages had stifled the younger generation’s ability to buy a house. According to the ONS, house prices in real terms have increased by 259 per cent in the past 30 years, compared to a 68 per cent rise in wages.

The FCA stated schemes such as Help-to-Buy had gone some way to help young people meet the cost but stressed many other consumers turned to the ‘bank of mum and dad’ or other family members, such as grandparents, to raise the funds. Last week, a House of Lords committee stated younger generations needed more support from older generations to afford property than ever before and urged the watchdog to ensure the market allowed for innovation.

In today’s report, the FCA encouraged more innovation in later life lending so older generations can benefit from products that meet their needs to maintain living standards once retired as well as provide younger family members to purchase a house.

By some bizarre circular logic, they recommend exactly the opposite of what it would take to 'help people onto the housing ladder', which is to restrict mortgage lending to two-and-a-half times earnings, or twice earnings for a couple. In the good old days, banks and building societies would not take rental income into account, which is why BTL lending was unheard of.

But this is traditional as we approach another resulting peak in house prices (actually land prices). It'll all go *pop* again in 2025-26.

Bureaucrat Worried About His Job

Here

By observation and logic regulationism was at the heart of the events leading up to the 2008 credit crisis.  It was the predictable, abject and unremitting failure of governments and their bureaucratic Satraps engaging in credit expansion and niaive and incompetent (based on their ignorance and their own self regarding arrogance) bank regulation especially as regards the quantity and quality of their capital requirements that encouraged Banks in their own (and ultimately unsustainable) monetary expansion.  The result being an absolutely text book Austrian Business Cycle theory failure.

In fact the sheer quantity of regulationism has made Banking a de facto nationalised industry: a state sanctioned specially privileged cartelised supplier of a monopoly product engaged in couterfeiting.

So then we get self serving bureaucrats like Randall clamouring for more regulation post Brexit. One might have thought he was worried about his job.

Dear Phil....

...if this is your Bright Idea I'd like to point out that for my company to set up an ISA for a client I am supposed to produce at least 110 - yes one hundred and ten - pieces of paper as required by your regulations. Without your regulations I could provide all that the buyer really needs to know on one sheet of A4, double spaced, 10 pt, Verdana.

And I'd also like to point out that the FCA uses its Handbook to specify these regulations, and at the last count there were over one million, yes 1,000,000, paragraphs (and here) in that alone.

And what about the UK tax code?

Look to your own house you wanker.

Safe as (securitised) houses...

FT Alphaville's Kadhim Shubber, has been questioning the sanity of investors in property crowdfunding schemes:

"The flat’s market value in January 2015 was £525,000; Property Partner grabbed it at a discount for £435,000; and in July another independent valuation put the price at £611,000. But in the past three months investors on the website have given the property an implied valuation as low at £520,000 and as high as £4m."

It's less common for financial hacks to question the market valuations of property companies in general.  Take institutional landlord Grainger plc for instance.  At close of play today the company was valued at £906 billion, whereas on 31/09/2015 (when they were valued at more like a cool billion) their accounts showed net assets of £565 billion.

There's perhaps a big difference between buying a company at more than the value of its assets in the hope management grow the business and buying a share in one flat.  But nevertheless, whereas the big commercial property companies trade at thereabouts or even discounts to book value, those plc's holding residential property (landlords and householders) are changing frequently hands at double their intrinsic value.  The market likes UK residential property so much, it's prepared to pay double the going rate for the convenience of owning it in the form of ready-leveraged, hassle-free shares.

And the nations financial regulators appear to be quite happy for residential property to effectively be securitised and flogged as illiquid penny shares on the basis "Bricks and mortar make a solid investment" and "No one ever said ‘safe as the stock market" and even "Earn a current estimated return of 10%* per year, after fees."  

Alongside this sales spiel, Property Partners boast that over 8,000 punters have invested over £35 million in 234 properties so far.  Small fry in housing or stock market terms, but one to watch and something that just might take off during the next phase of the land price cycle.  How long it will be before the leveraged products are released?  And will they be allowed to advertise in the same manner?

"Warning for rogue payday loan firms"

From the BBC:

The Financial Conduct Authority (FCA) watchdog has warned it will "take out" payday lenders who do not follow stricter new rules. The FCA then narrowed its eyes and pointed directly at you with two fingers, using its thumb as an aiming sight.

The FCA is now muscling in on regulation of credit providers and debt management firms from the Office of Fair Trading.

'Rolled over'

The FCA wants to deal with extortionate charges, and the danger of borrowers being pushed into a cycle of debt. It is also taking over regulation of credit cards, and pointed out that this was a nice little hire purchase, debt management and debt advice business you had here, and that it would be a shame if anything happened to it.

'Seen to'

"Our processes will probably force about a quarter of the firms out of the industry, and that's a good thing, as those are the ones that have poor practices," Martin Wheatley, chief executive of the FCA, told 5 live.

"You get me?" he added, tapping his palm with a large spanner which had appeared out of nowhere.

The Middleman Strikes Back.

When I first learnt about peer-to-peer lending, I thought, "Oh dear, the banks aren't going to like that, I wonder how long it will be until they get their mates in the government to put a stop to it."

Now the fightback has started. As Matthew Lynn points out in Moneyweek "P2P is doing to finance what the web has done to dozens of other industries, - cutting out the middlemen" and then, unsurprisingly: "From April next year, the fast-growing P2P lending and crowd-funding industries will start being regulated by the Financial Conduct Authority".

The FCA, of course professes that they are trying to protect investors from taking "inappropriate" levels of risk, whatever that may mean, but it is fairly obvious that they are just doing the job of every regulator, which is to protect incumbents from nasty upstart competitors by raising barriers to entry, one of the only things the FCA and its predecessor, the FSA, manages to do with any degree of success.

As Matthew Lynn points out "Indeed, if there is anything customers need protecting from, it is the traditional banks and fund managers, not the people offering a better deal than they do."

Help Wanted

I am not Mark Wadsworth

There is growing realisation in the UK (and in Italy and Greece) as to just how unaccountable and out of control are the ‘technocrats’ and the bureaucratic quangos in which they serve. These nouveau institutions are beloved by politicians as a method of putting responsibility at arms length, and crucially outside the disciplines of the genuine Civil Service or the rule of law.

These nouveau institutions are the creation – in the main - of socialists (of both the right and left). Their purpose is to proto-nationalise by regulation all types of enterprise. The excuse used is that they are needed to ‘protect the consumer’. This is, of course, nonsense. The ‘consumer’ is best protected by a vibrant and competing business sector without special privileges for any sub sector (banking? Trades Unions?) and the firm application of the principles of ‘buyer beware’ and ‘professional responsibility’. You might also add that Baking must take its role as a fiduciary more seriously. No central planning bureaucracy, especially one without democratic accountability and whose funding is under no democratic or market control is never anything other than self serving.

I have quite a bit of experience of one set of these outfits, those that regulate financial services. There is a trio of these; the Failed Financial Services Authority, The Financial Ombudsman’s’ Service, and the Financial Services Compensation Scheme. They were all introduced under the now entirely discredited FSMA 2000. Brown’s, at the time much lauded, ‘tripartite regulatory system’, but now revealed as a ramshackle construct designed purely to proto-nationalise all financial services by sclerotic, inept, overweening tick box reg-yew-lay-shun and, by destroying all the existing checks and balances and entirely eliminating the necessary separation of powers and making every one of the new quangos utterly unaccountable, ensured that he, Brown, could do just what he liked with our wealth, the end game of which we saw in banking failures in 2008.

The Failed FSA is set to be replaced by the Financial Conduct Authority (FCA) in 2012/2014 and there is a special Commons committee looking into how the FCA should be best organised. You will not be surprised to learn that the Failed FSA’s submission is that the FCA, in order to function effectively, must be subject to less accountability and should not in any way be subject to sanction by the Courts. It should be entirely outside the common law legal system of the UK. Considering that the regulatory and financial failures are entirely due to the predictable failure of technocrats (aka capricious bureaucrats with a self over-estimation of their skills and IQ) one might think that the Failed FSA evidence would be given very short shrift by the Committee. But, no, they are taking the Failed FSA seriously.

Whether or not you agree with me about financial services being full of a lot of good blokes, as well as not a few rotten ones (as it true of pretty well all trades and professions) you ought to take seriously this further erosion of freedom and the usurpation of power by capricious and unaccountable functionaries. This is the same mindset that puts approved European unelected Technocrats in charge of Greece and Italy.

It is not just me that thinks like this. You will see above a scanned image of the leader from one of the trade magazines.

In any event if any of you want to have your say and to halt the march of the bureaucratic state you can make your point to the Committee at:

http://www.parliament.uk/business/committees/committees-a-z/joint-select/draft-financial-services-bill/contact-us/

As they say in the charity ads on TV, please help, every contribution however small will help some disadvantaged native. The native in this case being your neighbour.