It really is very hard to imagine a way in which Social Security Secretary Peter Lilley could have more successfully alienated a key business constituency than the manner with which he has treated the mortgage industry over the past couple of weeks.
Lilley resembles nothing so much as a failing dictator, turning on his generals as the enemy advances on his bunker, or “Cabinet” as it used to be called.
It is a little unfair, perhaps, to describe the Council of Mortgage Lenders as the Government’s generals. But only a little. For it was the likes of the Halifax, the high street banks and the new money-market lenders that were in the vanguard of the home-ownership revolution of the Eighties.
Part of the effect of that revolution was to push home-ownership into demographic areas it had not occupied before – and a jolly good thing too. Home-ownership was no longer the preserve of the salariat, but within the range of the relatively disadvantaged. If you could not exactly afford the half-timbered pile in the stockbroker belt, you could at least buy your council house.
Then came what is rather euphemistically called a shift in the economic cycle. Big mortgages, and some small ones, saw the arrival of negative equity, a sort of poverty trap for the new middle classes.
It was at this stage that the High Command of the people’s housing revolution went berserk – and it would be funny if it were not for the families at the “new” end of the mortgage market that will be made to suffer.
High Command needed a secret weapon that would turn the war, even at this eleventh hour, in its favour. The tried-and-tested doodlebug was tax cuts, and a new jet-propelled version would win the day. But for that, the Government needed money. It could try selling the railways, or the nuclear industry, or both, but the order went out that public spending was to be tightened still further.
For his part, Lilley has been despatched, as a consequence of a statement in the last Budget, to introduce drastic cuts in the level of income support payments for homeowners who are made redundant or who become too ill to work. In essence, Lilley is saying that private-sector insurance schemes should handle the market for mortgage protection.
There has to be some purely commercial sympathy with this view. Or, at least, lack of sympathy for the mortgage market whingers. It was not, after all, the Government that created a housing boom that was fuelled by easy money and fancy earnings multiples, but the building societies, banks and money-market lenders. What the Government did was simply provide the economic climate against which all this could take place.
There should be more than a little caveat emptor attached to this business, as any other. Just as somebody with a big mortgage should not whine if the housing market turns against them, mortgage lenders should not complain that they bought the boom-and-bust method of doing business in the Eighties. They were happy enough to lend – and make – all that money during the good times. Mortgage lenders got themselves into this mess and they can get themselves out of it, without depending on the welfare state to do it for them.
I can see all that (even if I do not agree with all of it). What, however, amazes me is the way that Lilley has chosen to pull the rug from under the feet of the mortgage lenders, so alienating a constituency of business interest on which he will be politically heavily dependent over the next couple of years.
What is at stake here is a common interest in the effective marketing of financial services. Whoever is at fault for the state of the British housing market – the lenders for their gungho financing policies or the Government for allowing the economic circumstances to prevail that encouraged such lending – they surely have a joint interest in putting it right. It is not, from Lilley’s standpoint, about communicating a message, but about creating a new climate in which financial institutions can put right the marketing of money.
Instead, Lilley has turned on the mortgage lenders – a particularly foolish piece of image management, because the Council of Mortgage Lenders is headed by the mildest-mannered director-general, Adrian Coles, who simply makes Lilley look petulant and out of control. Coles does not try to do this, but there it is.
Lilley last week released the text of a letter to Christopher Sharp, chairman of the CML, despite an informal agreement that both parties would keep their own counsel until they had met to discuss comments that Coles had made on Radio 4. In an interview, Coles had said he did not think mortgage protection policies sold by insurance companies to homebuyers were worth much and that claims were difficult because of the number of exclusion clauses.
Lilley’s letter to Sharp said: “Could you confirm that Mr Coles’s ill-judged remarks were not correct? I appreciate that Mr Coles intended to discredit the Government proposals but, as so often when people resort to distortions, he has simply succeeded in discrediting himself, and blackening the previously high reputation of the building society movement.”
The mortgage-lending industry rallied behind Coles. Sharp quoted research from the Association of British Insurers, in his reply to Lilley, that shows that there are severe limitations on the cover that is commercially available at affordable cost: “The net result is to exclude many of those whose circumstances result from the trend to a more flexible labour market.” It continued: “For those most at risk, the cost of private insurance to provide a secure income during unemployment continues to be prohibitive.”
In other words, commercial mortgage protection doesn’t work, because to make it cheap enough to market you would have to exclude those whom it is most likely meant to protect.
I don’t know what the answer is. But I do know that Lilley was part of a government that framed the Financial Services Act which regulates the financial institutions, that are now causing him so much grief.
You can’t conduct a revolution, financial or otherwise, and when it goes wrong, ask those you have revolutionised to bail you out. As for those in the housing market, Lilley and the financial services industry might do them the courtesy of working together rather than against each other.
George Pitcher is joint managing director of media consultancy Luther Pendragon.