Sean Garman: Politicians cannot say banks have lent irresponsibly and then rebuke them for not giving every person a mortgage

Sean Garman works in corporate finance in the City of London and is a member of the Conservative Party’s Business Relations grouping. He is a also a committee member of City Future – the under 35s organisation for Conservative supporters in the City of London.

The Prime Minister’s comments reported last week in the Telegraph - that banks and building societies have gone “too far” in preventing “good risk” home buyers from getting mortgages - represent the bizarre double standard that we have come to expect from politicians in our democratic system. MPs are the first to “man the barricades” in decrying the banks as irresponsible, aggressive risk-takers who destabilised the economy. However, these same politicians are the first to demand that banks continue to lend money irrespective of whether they ought to or not. Now with property, politicians are now engaging in populism.

Bank lending needs to be sustainable but if we have just been through a property bubble then it does not make sense to ask for a re-emergence of lending at potentially unsustainable levels.

Everyone acknowledges that securing affordable finance is the key to getting on the housing ladder. Yet we continue to think of property financing via the prism of debt. It would be healthier for us to be more innovative; for instance, look at equity financing in the property market. This increases people’s disposable income as interest costs represent a lower component of their expenditure. It means that people can save, consume or invest their higher disposable income.

The debate about mortgage lending ignores a deeper issue regarding the property market specifically, and banking generally. Our economy for the past 13 years has become predicated on credit. Consumer, property and government borrowing has propelled GDP growth but how are we now to operate in a new era of constrained lending? In particular, how is our property sector meant to react now that banks require higher standards for borrowers?

Equity financing is one idea but there are many more that are out there. We need to be honest with people. The “good times” that we think are the norm were really an aberration. Banks are returning to a more prudent view on risk and lending, isn’t what people want? It is a contradiction to demand that banks continue to lend at high volumes while being “safe”. Just as it is a contradiction for politicians to savage banks for aggressive lending and then ask those same banks to maintain credit flows.  

The problem for Britain is that our politicians tend to blame an external factor or a single group before figuring out the real causes and coming up with actual solutions. There is no easy solution. Telling people to save, be more productive and to continually educate and up-skill is not an easy message to get across. What we need is real leadership where our MPs have the courage to be honest with us. Grant Shapps is a good example of a Minister who is prepared to be bluntly honest. The PM must not engage in populism, otherwise we will be repeating the errors of the past.