The Financial Services Authority (FSA) has set out proposals for the reform of the UK mortgage market. But what does the industry think? ...
The proposals (and they are just proposals at this stage) are set out in a mortgage review and discussion paper. They reflect, says the regulator, "the FSA's changed approach to a more intrusive and interventionist style of regulation."
The review's key features are:
- Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay
- Banning 'self-cert' mortgages through required verification of borrowers' income
- Banning the sale of products which contain certain 'toxic combinations' of characteristics that put borrowers at risk
- Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears
- Requiring all mortgage advisers to be personally accountable to the FSA
Calling for the FSA's scope to cover buy-to-let and all lending secured on a home, Jon Pain, FSA managing director of supervision, said:
"The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."
The proposals are out for discussion until 30 January 2010 and the FSA will be actively seeking views from consumer groups and industry. A feedback statement will be published in March.
Implementation will be phased, with the focus on speed for areas of high detriment, such as arrears.
Responses to the proposals
1. The Association of Mortgage Intermediaries (AMI)
Robert Sinclair, AMI Director, said: "We support the decision of the regulator not to apply restrictions to loan-to-value ratios.
"The regulator is right to address certain aspects of the self-certification model. However, this product is necessary for some consumers, such as those who may have fluctuating or seasonal income.
"The regulator would be better served by introducing more stringent measures on those lenders operating in this area of the market as they begin to lend again, rather than penalising all consumers.
"We are concerned about the impact on lenders' costs and therefore the cost of borrowing on those who benefited from fast-track in the past. These were consumers with good credit history who were deemed low risk by lenders, often with lower loan-to-value ratios.
"We are concerned with proposals to introduce stringent criteria for lending that may significantly increase the cost of borrowing for ordinary, responsible consumers. While we must ensure lending is responsible we should not remove all responsibility from consumers.
"Similarly, in transferring all liability to lenders, we need to ensure that this does not unduly restrict existing borrowers from having access to the full market. We do not want to create mortgage prisoners.
"It may be necessary to consider segmenting the purchase from the re-mortgage market. There will have to be careful interpretation of the testing of income so as not to discriminate against some sections of society"
2. The Council of Mortgage Lenders
The CML said: "It is interesting to see the FSA note that it believes regulation cannot rely on the notion of borrowers behaving rationally - that is, in their own interests - and that the regulator may instead need to introduce measures to 'protect consumers from themselves.'
"It is important that the principle of consumer responsibility is not lost in such a regulatory environment, as it is a basic tenet upon which transactions of all kinds between firms and consumers rely."
Michael Coogan, CML director general, added: "We agree with the FSA that regulation in itself cannot resolve the problems of the recent market.
"However, we also agree that clearly delineated responsibilities, which remove regulatory ambivalence, will help lenders, intermediaries and consumers to know where they stand, and to accept the consequences of their actions.
"As always with regulatory change, the devil may be in the detail. But we welcome the consultative approach, and look forward to working with the FSA to ensure that the objective of regulatory fairness between lenders, intermediaries and consumers is achieved in practice."
3. National Association of Estate Agents
Chief executive, Peter Bolton King, said: "Much of the extreme lending being done pre the credit crunch, was clearly not sensible. However, with the market picking up alongside a shortage of lending we need to be careful not to deter consumers nor give banks an excuse not to lend money.
"We are unsure on how these new procedures will roll out, yet in light of the demise of the stamp duty holiday and the inevitable rise in VAT we must take a sensible interpretation of these guidelines and find the right balance.
"If these guidelines take us to the opposite end of the spectrum they could do untold damage to the housing market, which is currently showing promising signs of recovery."
4. Which?
Which? chief executive, Peter Vicary-Smith says: "We're pleased that the FSA is looking to take a more robust approach to regulating the mortgage market, although we would like to see tougher measures such as a ban on mortgages over 100 per cent and the naming of lenders that mistreat their customers*.
"Mortgage providers are already responsible for assessing affordability, so why is the FSA only getting tough on it now? Many borrowers are suffering the consequences of irresponsible lending."
5. Moneysupermarket
Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, said; "It is understandable that the FSA should look to safeguard self-certification, and put some responsibility on the bank's shoulders to check the security of their borrowers.
"However, in practice the verification of income could be a tricky process, with future income levels often very hard to predict. Self employed people looking for a mortgage should make sure they have clear documentation to prove their income levels.
"We have said for a long time that lenders should focus more on affordability and loan to income ratios rather than loan-to-value ratios, but unfortunately the FSA's review does little to encourage those with a solid income but no deposit.
"It is our belief that the continued focus on 'equity as king' provides an unnecessary barrier to a large number of first time buyers looking to get on the mortgage ladder, and is preventing the mortgage market's return to a healthy level."
related links
- http://www.fsa.gov.uk/
The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms
