"So here I go again…walking down the only road I've ever known." Yes, it’s the lyrics from a Whitesnake song! But I kept singing it whilst reading about recent moves in the UK lending market. And then there’s the definition of insanity: "doing the same thing over and over again and expecting different results." Are we in danger of doing it all again?
Help to Buy has motivated and enabled a whole section of buyers to put their money in bricks and mortar. Banks are lending to people without big deposits – again. Well, I for one am all for it! Twenty years ago I walked into a mortgage broker’s office and said, "how do I buy a house with only £400?". We found a property I loved, where I wanted to be, within my price range, with the deposit paid by the builder. Job done. And 20 years later, I am delighted to report I have never having missed a single payment! No, going back to the nutty, unscrupulous, profiteering, 100%-plus, 20 times salary days, shouldn’t happen again. But do I support getting people on the property ladder, yes.
We should look at the Canadians, not only are they perhaps the politest people in the world! They also happen to have escaped the worst of the lending crisis by focusing on low-risk, conservative lending practices. It’s not very glamorous, and there are arguments that this sort of low-risk approach yields only low growth. Having said that, I am not sure I want my excitement to come from my banking industry lending policies! If I wanted heart-thumping plots and climatic finishes, I'll stick with Vin Diesel movies, not my bank manager!
For me, lending policies should be solid and common sense. They should be anchored on the knowledge that the customer can afford the loan and is committed to paying it back in full. It doesn't actually help the customer to lend more money than they can afford. Boring and dull, but predictable and consistent. Banks are going to be looking elsewhere for opportunities to raise additional revenue and improve profitability as the more risky lending practices are hopefully not going to be making resurgence anytime soon. Hopefully this will mean more innovation in products and services and lots more streamlining and efficiencies in their processes.
Actually, that's quite exciting.