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November 2009

How the mighty have fallen!


TWO recent items of news crossed my ken at almost the same time. Both were stories critical to our industry: both indicative of significant changes in the market.

The first was confirmation of a widely-reported story that the once-mighty Halifax, now little more than a nasty blot on the Lloyds TSB balance sheet, was selling off the last of its estate agencies — one of the last of the large financial institutions to do so.

The second was publication of the long-awaited Review from the Financial Services Authority outlining a whole raft of suggested new criteria for mortgage lending intended to kill off all self-certification with checks and yet more checks!

Not that many of these FSA suggestions are that new – save, perhaps, the breath test!

But self-certification has its place although today, I see such mortgages described as ‘liars’ loans’!

That may well be the case if they really were 30 per cent of all mortgages approved in 2007 – against much less than three per cent in the times I’m talking about!

Where they made sense was with a would-be buyer whose income was there but not so easily or readily verifiable.

For instance, where somebody was making a great success of their new career but, now self-employed, had ploughed all their available capital into the business before wondering where to live! But produce three years’ audited accounts? No way!

Usually self-certification meant arranging an interview which had to be stage managed with the right manager present with a freshly scrubbed applicant. Both had to be properly primed, ideally with the interviewee word-perfect.

All this changed when ‘buy-to-let’ took off big time. This scheme was largely devised and strongly promoted by the Association of Residential Letting Agents.

In this specialist market, self-certification was a magic key to success. As long as each house added to the portfolio was roughly paying its way, more stock could be rapidly acquired along with more self-certified mortgages.

The rot set in when a few less scrupulous individuals realised there was no real need actually to keep the properties. If repayments were made on time no further questions were asked.

So they sold the houses on releasing the capital for other investments. Better still, given a complicit solicitor and less-than-diligent lenders, they could often remortgage the same property as often as they liked.

This type of fraud did not involve estate agents just somebody to handle the legal side and lie a little.

A Report investigating the extent of mortgage fraud in the late 1980s found a handful of properties carrying multiple mortgages – I think 45 or thereabouts was the worst.

However, that Report came a little too late as the market collapse was by then inevitable and nothing could then have stopped the surge in possession cases that followed.

But reselling one house only redeemed one fraudulent mortgage: it did nothing about the others lent against the same security!

The new Building Societies Commission was effectively part of the Treasury and could only exercise weak control over lending policies. Government philosophy at the time was simple - competition was king and the less regulation the better.

The housing market is such a crucial element underwriting the whole UK economy and while the worst frauds were a very small percentage, a mere one tenth of one percent of four trillion pounds is still an awful lot of money – about four billion pounds!

And what has since happened to the lenders who built their business on the buy-to-let boom? The list starts with the likes of the Northern Rock, Bradford & Bingley, Abbey National, Alliance & Leicester, and HBOS – have you spotted a trend?

Of these, HBOS owns the once great Halifax after it merged with the Bank of Scotland, at the time already a large player in the mortgage market.

Lloyds TSB had bought up the Cheltenham & Gloucester in 1997 but otherwise was not in as big a mess as many of the mainstream banks.

That is not until the chairman got himself button-holed by the Prime Minister. A few drinks later and his arm twisted well up his back he agreed to take over HBOS, as a favour! This was to prevent a disastrous collapse Northern Rock-style.

The market can be so cruel and so the once great Lloyds TSB, having done the Government a favour, had to ask for one in return and was bailed out by the Treasury.

The Treasury is now worldly-wise and will buck no nonsense and so Lloyds has to look at everything. Initially plans were announced effectively to close down the 160 C&G branches.

That move is now on hold and instead the bank is selling off – if that is the right word – its remaining 218 estate agency branches for the noble sum of one pound!

For this princely sum, the taxpayers have handed over all the assets plus a reported £38 million sweetener – £8 million in property and £20 million or so in cash to cover the necessary rebranding and redundancy money.

Many of the multi-purpose branches employed both agency and banking staff. All these in-office posts went immediately with further staff redundancies to follow as duplicate branches are closed or integrated. The LSL aims to reduce the Halifax administration costs by £1m. a week.

Yet once the Halifax was the largest building society in the world. It effectively ran the UK economy almost single handed to the extent that a Bank of England Governor once remarked that “interest rate policy is set in Yorkshire, we reflect it down here in the City of London”. And he was not joking.

When banks were first allowed into the mortgage market they were on a steep learning curve while the building societies could call on 200 years’ previous experience.

The banks and financial institutions soon realised that estate agents could be the key to beating the competition as a source of fresh mortgage business and targets for other financial sales. This revelation came suddenly.

The first of the mainstream banks to break cover was Lloyds in creating Black Horse Agencies. It came with a load of PR guff about arms-length and a professional board of management, etc. This fooled many people including, I am sorry to say, the Government.

In my book no financial body should ‘control’ any profession but unfortunately estate agents are not seen as professional. Because we sell houses we are seen as merely sales people whereas I would argue that, for this very reason, estate agents are all the more professional as we deal with potential conflicts of interest day in, day out.

David Perkins can be contacted by e-mail at or by phone on 01993-843808.