Ray Boulger is widely renowned as the guru of the mortgage industry and expert on the housing market. Ray is constantly called upon by the media to provide informed comment on all areas of the market, and is a regular on the BBC, Sky and ITV.

Last year, Ray was voted guru of the year at the Headlinemoney awards by all of the nation’s money and property journalists, and as the mortgage expert for our partner, John Charcol, we thought we'd share his views with you.

From this month, we relay Is This Week's European Court of Justice Ruling the Thin End of the Wedge?  So make yourself a cup of tea, sit back and enjoy...

 

Blog By Ray Boulger

The EU Gender Directive sets out a general prohibition on taking sex into account when calculating premiums and benefits for insurance contracts written after December 2007. However, until now there has been a very sensible, logical and important exemption that allows member states to permit pricing and benefit differences based on gender, provided this is a “determining risk factor” and there is statistical evidence to substantiate this, as is the case with many insurance contracts, including motor, life insurance and pensions.

Following a challenge by a Belgian consumer group, Test-Achats, the European Court of Justice (ECJ), a body from which there is no appeal, this week confirmed an earlier opinion by the ECJ advocate general that this eminently sensible exemption was superseded by higher ranking gender provisions in the Charter of Fundamental Rights as set out in the Lisbon treaty.

All three major parties in the 2005 UK General Election promised a referendum before approving what was at that stage proposed to be a new EU Constitution, although the Constitution was subsequently abandoned after the only two countries allowed to vote on it, France and Holland, voted “the wrong way.” This Constitution then metamorphosed into the Lisbon Treaty.

After voting “the wrong way” on the Lisbon Treaty the first time the Irish succumbed with a Yes vote, which effectively left the passing of the Treaty in the hands of Gordon Brown. This was because for the Treaty to be approved 100% of EU countries had to accept it and no other country apart from Ireland was required by their constitution to put it to a referendum.

Had Gordon Brown honoured the Labour Party’s election pledge to hold a referendum the polls suggested the UK would have voted against the Treaty by a sizable majority. Mr Brown of course knew very well the likely result of a referendum and this was the real reason for reneging on his promise. Even in a mature democracy what the voters want obviously can’t be allowed to thwart what our political masters know is best for us. Our politicians are rightly keen to call for democracy in Libya but shamefully are less keen to implement some aspects of it at home.

In the judgment the ECJ points out that the EU aims to eliminate inequalities and to promote equality between men and women. It said "Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination." The mind boggles with how far the Court will pursue this argument. For example will the ECJ rule that all men are required to have a breast enhancement operation in order “to promote equality between men and women?

On a rather more serious note where will all this end? In the second half of this month we are expecting the first EU draft Mortgage Directive. This is not expected to include any anti sex discrimination regulations along the lines of those for insurance products but who knows what bright ideas the Eurocrats will come up with in the future?

There are many areas of discrimination in the mortgage market, some sensible, some not. One generally sensible discrimination is that borrowers who have one or more County Court Judgments or have recently been discharged from bankruptcy are considered less likely to meet their obligations and will hence either be declined for a mortgage or if accepted will only be offered more onerous terms.

Largely as a result of regulatory action (Basle 2) since 2008 it has become much more expensive for lenders to offer high LTV mortgages than lower LTVs up to, say, 70%. There is of course more risk of loss on a high LTV mortgage if the borrower defaults but using the arguments of the ECJ it could just as easily be argued that charging more for a high LTV mortgage or a mortgage to someone who is less credit worthy is discrimination, albeit not on the grounds on sex.

Today’s ruling could leave the door open for some other consumer group to challenge mortgage underwriting in the same way. Perhaps we should have one rate for all, not on the basis of sex discrimination but using some other excuse such as age discrimination. It certainly wouldn’t be difficult to prove that the younger the borrower the higher the likely LTV on their mortgage. This is clearly a blatant case of age discrimination! No doubt some smart lawyer could prove that because there are more poor risk mortgage borrowers in a certain age group, this group is being discriminated against because of their age and therefore everyone must be offered the same interest rate and same maximum LTV.

The net result of such an action would be:

* Good quality borrowers would pay more than was justified, reducing their purchasing power. * Poorer quality borrowers would progressively have a significantly higher share of mortgages, resulting in increased losses for lenders. * Lenders would be forced to continue lending to poorer risks at unrealistic rates, unless they increased all their rates, resulting in the proportion of good quality borrowers steadily diminishing. * House prices would fall sharply as a result of good quality borrowers not being prepared to trade up because of the much higher mortgage costs of a new loan compared to their current mortgage. * The combination of losses after significantly higher repossessions from the much higher proportion of poor quality borrowers on lenders’ books and the fall in house prices caused by the anti discrimination legislation resulting in a lack of purchases by many good quality borrowers results in more bank failures. * The Government decides it can not afford any more bank bail outs. * The ATMs stop working...

One consolation would be that lenders could shorten their mortgage application forms to a single page because they would no longer have to ask intrusive questions like how much one earns (after all they won’t be allowed to discriminate against people simply because the don’t earn enough to afford the mortgage). Not taking any of these risk factors into account would, among other things, completely contravene FSA responsible lending rules but there is no appeal against the ECJ – it is effectively God – and so the FSA would become redundant.

The lunatics really have taken over the Brussels asylum and it is all Gordon Brown’s fault!