Central Bank cannot control private banks

Warning! Mortgages can be bad for your health. This week, banks and other lending institutions were forced to carry health warnings on their mortgage advertisements. It was the first use of new powers given to the director of consumer affairs William Fagan under the Consumer Credit Act.

No bank is actually going to come out with an ad that proclaims a tobacco type warning but they will have to give the public considerably more information than they currently receive. Prospective lenders will have to be told a range of details including a warning telling borrowers that the level of monthly payments may increase.

This sadly is the only positive action being taken to counter the very public spectacle of a market dangerously out of control. House prices rose by over 15% in the 26 Counties last year and the same in 1995. House prices in the Six Counties have displayed similar rises.

Such rises are out of place in an economy where overall inflation is barely two percent. The price increases are being driven by the banking sector who are involved in intense competition in the lending market and the developers of new housing schemes who respond to the higher level of bank cash on offer by driving up house prices. This in turn drives up the price of second hand house sales.

The result is a now an uncontrollable spiral of price increases fuelled partly by four years of low interest rates which means that borrowers can just afford to pay the higher mortgages. If interest rates go up though, many homeowners could find themselves unable to pay mortgages.

The result would be a cycle of repossessions and falling house prices leaving home owners who could still make payments with houses whose resale value was either less than they actually paid for it and considerably less than the cost of servicing their mortgages.

This is not a doomsday scenario. It is the likely outcome of current market trends. The British housing market in the late 1980s went through a very similar spiral, the cost of which many homeowners are still paying for.

The banks claim the lending criteria is that most borrowers should not be allowed to borrow more than two and a half times their annual income. However in practice it has been shown that some banks are willing to stretch the criteria to loans five times borrower's annual income.

The result is that families commit huge amount of their resources into buying a house. Other families who now cannot afford to purchase houses are caught in a cycle of ever-increasing rental costs becauses landlords often calculate rent off the mortgage value of a house.

This is a clear example of market failure. House prices should not be allowed to spiral out of control. In recent weeks the Central Bank, the Dublin Government and even the Irish Auctioneers and Valuers Institute have called for some control of the financial institutions who, they say, are driving this cycle.

Last week the Central Bank announced that they were writing to the banks. This is a laughable course of action. The role of the Central Bank and government is to regulate markets fairly. In many cases regulation means a free-for-all. The housing market is an example of how free markets do not guarantee equity. Instead they create hugely onesided outcomes. For the banks the current scenario is hugely profitable but for the buyers it could spell disaster.

The Central Bank could order a cap of interest rates for house mortages or start enforcing limits on the amount of money made available to individual borrowers. The real question though is whether Central Bank inaction is because the private sector banks are beyond control. Their inability to regulate the housing market is perhaps proof of a much deeper problem.

Shirt pulling Fowler

Cellnet, Carlsberg, Sharp, Coors, JVC, Ford and Newcastle Brown Ale - these are all examples of the acceptable face of advertising in sport and currently adorn the shirts of British soccer teams.

However last Thursday, after scoring his second goal against FC Brann, Liverpool's 22 year-old Robbie Fowler showed the unacceptable face of advertising in sport. Fowler was only partaking of the current fashion in soccer where goal scorers pull their shirts over their heads, which seems to have superseded the fashion of previous years of diving towards the touchline.

After scoring Fowler initiated the expected ritual. He pulled up his perfectly acceptable Carlsberg Liverpool top to reveal a new message saying ``Support the 500 sacked Liverpool dockers''. The dockers have been on the picket line since September 1995 when they voted against their employer's plans to casualise work on the Liverpool docks. Fellow player Steve McManaman also wore one the Docker T-shirts but failed to score.

UEFA is to decide this week if Fowler's shirt pulling escapade could be deemed ``unsporting behaviour''. One wonders what was actually unsporting about Fowler's actions. Was it that he should not have been seen publicly supporting a political cause, even though it is perfectly acceptable for Spice Girl Geri and Noel Gallagher to adorn themselves with Union Jacks and talk about whether they favour Blair over Major.

It was, it seems, unsporting of Spice Lad Fowler to bring a more pressing reality into the public arena - that of 500 workers on the picket. It all goes to show you can mix sport with music, modelling, flash cars, night club living. Just steer clear of politics lad and you'll be OK.