What’s the housing market got to do with ethics?

Leo Martin’s letter in today’s Financial Times (no longer available) about the housing market might not seem an obvious fit with GoodCorporation’s day-to-day work on business ethics. However the need for long term loans in the UK housing market to provide greater stability to the market is clear. It would be a fairer system for home owners, with transparency and long-term certainty about prices of mortgages. It would disadvantage banks and building societies as well as financial advisers that make good money from people having to regularly switch their loans.

The question is why does the market fail (even during the long boom years) to offer longer term loans. There is a clear demand for long-term savings products (to try to make our pensions worth more than we put into them). So why are financial institutions not able to develop products meeting both long run savers and borrowers needs. Leo concludes it must be because it is much more profitable to have a constant two year churn with the associated fees and commissions that the industry has no real interest in changing its structure. Therefore he thinks there is a clear case for the state-owned banks to change the structure of the market by introducing long-term loans (and savings products).