Tuesday, 4 May 2010

Do first time buyers need an accountancy course?

You would expect the Accounting and Bookkeeping College to be in favour of financial training and we were indeed excited to hear about the suggestion from Malcolm Hurlston of the Consumer Credit Counselling Service that first-time home buyers should only have access to a mortgage "after study and an exam". A mortgage is a huge financial burden that can eventually overwhelm an ill-advised borrower.

Nobody is pleased to see individuals fall into bankruptcy so it is tempting to adopt any policy that might prevent this. It is not surprising that the people most likely to suffer from debt problems are those who take on 110% or 120% mortgages and a good course might teach people that these financial products are not as desirable as they seem. On the other hand Sue Anderson, of the Council of Mortgage Lenders, points out that people find themselves in mortgage arrears generally after an unexpected life event such as redundancy. Perhaps she has missed the point of training which would, we hope, teach students to anticipate life's ups and downs?

Even so it is not tempting to endorse Malcolm Hurlston's proposition because there are at least two other flaws in our economy that we ought to address before we start to hand out 'home ownership certificates'. Firstly, for every borrower that takes a mortgage which is larger than they can manage there is also a lender. Banks and building societies lose money when their customer defaults and, if it happens too often as in the case of Northern Rock, will eventually go bust themselves. We all agree that some sort of supervision of financial institutions is necessary and it could be that, instead of looking at more complex forms of analysis of banks, our FSA ought simply to outlaw nonsensical products like 100% mortgages.

Secondly, we need to be much more sensible in our view of the value of houses. It is time that politicians and others stopped using expressions like 'property ladder' with its implication that, once you own a home, your net worth will continue increasing automatically until your children inherit. The results of this delusion can be seen in Ireland where developers built thousands of useless homes or the USA where mortgages sold to the illiterate and unemployed could be packaged as AAA assets because they were backed by a home as security.

When society finally learns its own financial lessons it will be time to start trying to teach consumers.

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