UK CML encourage more debt

With an astounding example of inappropriate timing, the UK’s Council of Mortgage Lenders (CML) yesterday announced that the equity release sector should be encouraged to grow by the government. 

Equity release schemes are designed to homeowners to release cash from the current value of their property – in other words equity release is a mechanism by which you can trade any gain from property prices for more debt.

Now, we weren’t sure we read this correctly, but it seems that the CML is actually encouraging more people to take on extra debt – this at a time when the financial markets are in turmoil, credit is impossible to get hold of and the threat of a house price collapse hangs like the sword of damocles over the overinflated UK housing market.So what are they thinking – well the clue is in the fact that mortgages have all but dried up and lenders are desperate to find outlets to make margin on loans.

So what better than to bring back the age old idea of getting the old, weak and vulnerable to raise cash by effectively selling off part of their homes. Anyone who remembers the early nineties will remember that such schemes abounded at the time, eventually backfiring on the borrowers as interest rates shot up and the borrowers found themselves unable to pay off debts and eventually evicted from homes they had spent most of their lives paying off. It’s a wonder that such schemes haven’t been outlawed or at least strict guidelines attached – and yet here we see the CML actually asking the government to encourage such schemes.

Our view – someone at the CML should stand up for responsible, prudent lending – clearly the CML is a lending body that has its head in the sand – the words ‘crisis, what crisis?’  come to mind.