Tuesday, 24 June 2014

Lots of checks. But no cheques.

If you're rich you can't borrow. If you're poor you can't borrow.

Only if you're a dull worker bee with a penchant for frugal living and a steady, going-nowhere job can you be pretty sure of securing a mortgage.

That's the apparent outcome of the recent tightening of lending checks.

It's absurd, it's counter-productive and it's not going to end well.

Over the last few days, I've listened to three of the wealthiest people I know complain that mortgage lending just doesn't exist for them any more.

Even though they might own a string of homes, a portfolio of equities and various business interests, their personal circumstances don't exactly fit the profile required to qualify for a loan.

The 21 year old Oxford Brookes sociology graduate with a clipboard and biro who they are forced to discuss their mortgage requirements with has a list of banal questions designed for a 30 year old supermarket deputy manager looking for a first home loan.

There are no experienced bank managers (high street banks can't afford real bankers any more), and there is no discretion, no variation, no common sense.

You might as well fill in the application online. There's nothing human about the process any more.

Even the so-called posh banks are little better.

By some peculiar accident of a previous life, I bank where the Queen banks. For 25 years I have borrowed from them against homes I have bought. I have always repaid these loans, always paid every monthly interest payment. Never once have I given them cause for even a flicker of concern.

For most of those years, they've never given me cause for concern either. If I was moving home or renovating a home, a quick chat with my manager was all it took to secure the funds required. Once, they even added an extra £100k to the mortgage offer just in case I needed it.

Their managers were always good sounding boards, providing reassurance or caution when appropriate.

I was in love with my bank, in fact. And took every opportunity to tell anyone who'd listen what a fantastic operation they were.

When I recently asked for a bridging loan however, the answer was an immediate no.

They didn't have a reason. There was no discussion of the case. Just a NO.

Eventually they did come up with an emailed reason: I was too old. They don't lend to people over 65, apparently. Trouble is, I'm not 65. Not for a few years, anyway.

Now, I accept that I don't fit the usual mould of borrower. My regular income is insignificant. I have neither an employer or a business with a track record.

What I do have though is a long history of financial stability, a couple of decent unencumbered prime property assets and a plan that would repay any bridging loan within 12 months.

I was asking for an LTV(loan to value) of only about 10-12%. So even in a catastrophic crash, the loan would still be well covered.

The risk involved was almost non-existent. But there is no longer any human process by which risk is assessed.

In its place there is now a facile fits-all check-list that permits no flexibility, no history, no individuality.

I'm sure the new guidelines will help prevent the granting of unrealistic mortgages, stop abuses of the system and slow the runaway train that is house prices. But at the same time won't it also curtail ambition, deter individuality and encourage conformity.

I am reminded of someone I once worked with who, in the 1980s, bought a house on a Chelsea square. At the time, even though he ran a hugely successful ad agency, the mortgage he had to take out frightened him. He wondered if he'd ever be able to repay it.

That house is now worth around £6m. His mortgage, I think, was for about £100,000.