It’s The Chancellor Versus The Regulator, With Customers Stuck Right In The Middle

At a time when the Government are trying everything they can to stimulate a failing financial services market, it is surprising to see how many times I see the regulators moving in totally the opposite direction.

It’s like a battle between feuding parents, never wanting to agree on anything. Only in this case, it’s the average customer that always seems to suffer.

It All Started With The Fuel Feud

Over the last few months, wherever you look, we are all being encouraged to switch our energy suppliers to save ourselves money and improve the competition between the different offerings.
It all started with being told to switch energy suppliers
Even parliamentary members were extolling the virtues of comparing prices and transferring to the cheapest supplier, which would in turn encourage other companies to reduce prices, and therefore encourage overall cost reduction in the long run.

But while this was happening, the regulating bodies were enforcing policies that removed the differentials between the companies mandatorily, and therefore eroding the benefits of switching for the average Joe.

And as this feud has gone on, the general customer is left more confused. Should we switch or should we stick? And now the same trend is set to hit the financial services market, with the customer being the only one that actually doesn’t benefit.

Now It’s In The Banks

While banks are still cowering in the face of the recent mortgage crisis, it has been up to the government to try and buoy up financial institutions across the country, and encourage them to start issuing mortgages again. And one of the key ways they have done this is through their help to buy scheme.

This Help to buy scheme works as an insurance policy for the mortgage companies, meaning that they are better protected should a customer default on their mortgage payments, and thereby reduce their risk of lending for the offering bank.

“The Financial Conduct Authority have made it more difficult to obtain funds for a mortgage by imposing new policies which extend the time of the application process.”

As the risk of the mortgage reduces, so does the price the bank has to levy to its customers, thereby reducing the price of the repayment to the average borrowers, encouraging more people to apply. And therefore we are all happy, Right?

But no, because over in the blue corner, while all this is happening, the FCA are imposing new MMR policies which are not only extending the time it takes for new applicants to get a mortgage, it is actually making it more difficult to qualify for the funding to buy a house.

And, as you’ve probably guessed, the longer the time it takes to complete the mortgage application process, and the greater number of hoops potential home owners have to go through to gain a mortgage not only slow down an already flagging housing market, but it is also increasing the cost of the entire mortgage process.

What the Government gives in one hand, the regulators are taking out in the other. With customers in the middle left very confused.

It’s No Different For The Corporate World

Take a look at what has been happening for small business borrowers for example.

The Government have introduced ‘Funding for Lending‘ which was meant to provide financial support to banks who were willing to lend to small businesses. More encouragement for the banks to lend, more encouragement for small businesses to borrow, leading to a more buoyant commercial sector.

Yet, at the same time, regulators are insisting that banks keep greater levels of cash reserves, to reduce their exposure to risk, and therefore have less to lend to their customers in the first place.

The Government tells banks to lend, while the regulators tell them to keep more of their money safe. Who is right? And what is the small business owner in the middle meant to do?

It’s Happening In Pensions Too!

Many of us were left with mouths aghast when it was announced in the last Budget that, from 2015, anyone who holds a money purchase pension would be able to liquidate the entire fund and gain access to the cash as soon as they reach 55.

Yes, only the first 25% is tax free, but it still encourages a freedom in the pensions market that we have not seen before.

Pensions

Even with pensions, the regulator & chancellor offer conflicting advice/guidance

For years, pension holders have been forced to put the majority of their pension fund directly into an annuity. And though many have been unhappy with the returns possible, it has meant that those nearing retirement age are making suitable preparations for their future.

But with the new policy in place, many individuals reaching the age of 55 don’t know what to do. Some are cashing in their entire fund and having a spending spree, while others are living on the breadline afraid to spend a single penny.

And if that is not confusing enough for the standard pension holder, the regulators are here to ensure that no customer knows exactly what is going on.

Just as the Government are offering freedom from the ties of the original pension process, the regulators are putting even more pressure on pension’s companies to ensure individuals do put their money away for later life. But this time, they must do so in a way that suits individual future lifestyles and future life expectancies. But how many of us can actually can see into the future? If we could, wouldn’t we all be going out buying lottery tickets?

Let’s Just Make One Choice

Ultimately, there are pro’s and con’s for each policy and piece of regulation being issued, and we could debate for days the benefits of help to buy vs the support the MMR could provide. The key concern is more that there is no one, consistent direction from the people who are actually meant to be controlling the financial welfare of the country.

It’s a bit like your doctor telling you to eat more sugar when your dentist tells you to cut down. Both have their benefits, but when the people who you are meant to listen too aren’t singing from the same hymn sheet, the message that comes out just turns into noise.

So what is the solution? Thankfully, independent financial advisors are on hand to wade through these trials and tribulations for you. And like any good guidance counsellors, they can offer advice on a case by case basis.

But in the meantime I say to the Government and to the Regulators, stop what you are doing and think about the effect it is having on the customers themselves. It’s the only way the country is ever going to get back on its feet.

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Written by: Steven Keogh

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