1 - the credit crunch (the money man)
2 - The FSA (the regulator)
3 - The FOS (The ombudsman)
4 - TCF (The principle)
Let me explain.
1 - The credit crunch has sucked money out of the markets, we all know this. The Treasury is in the process of seemingly nationalising the bank's mortgage debt to free up cash for lending but this will not work because of this -
2 - The regulator has recently stated that they have 3 concerned areas for mortgage advice, high loan-to-value ratios (90%+); high loan-to-income multiples (3.5x); and terms over 25 years.
3 - The ombudsman has picked up on this and made a statement regarding future complaints. Now the ombudsman has said that these areas do not constitute a complaint, but it flags this up as an area for concern.
4 - TCF or Treating Customers Fairly. TCF is a key principle and a practice any business should follow. However in the last year the regulator has majored on this as part of it's principles based regime. Basically TCF can be used to say to any mortgage adviser or lender - 'You have not treated your customer fairly by allowing such borrowing. You should compensate your customer' all done with hindsight. TCF is basically a principle that can be used to solve any of the regulator's problems, when they get around to noticing the problems.
So the withdrawal of 100% mortgages and the tightening of credit criteria is not to do with the credit crunch, but more to do with TCF in a falling housing market. Lenders know that they have lent too much money on a falling asset without checking incomes and are fearful of being hung out to dry.
We have now got to a point where it does not matter how much money is put into the market, the credit tightening will not relax.
And let us not forget that most of the credit tightening is only tightening the relaxed credit conditions of the last 6 years.