FCA should consider ‘modest de-regulation’ to promote competition

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The FCA should consider a “modest de-regulation” of the mortgage market to improve competition, says the Council of Mortgage Lenders.

At the end of last year, the FCA published calls for input on competition in the sector and is now deciding whether to launch a full review on the issue.

The FCA is interested in issues such as whether all areas of the mortgage market are competitive and how competition is affected by economic changes such as an interest rate rise.

The regulator acknowledges the case for examining how regulation has affected competition. Specifically the FCA is asking how the Mortgage Market Review affected competition.

But it is also considering the competition angle to its current review of responsible lending, as well as its completed review into mortgage advice and distribution.

The CML argues that the mortgage market is already competitive but urged the regulator to avoid layering on more regulation to increase competition further.

In its latest News & Views publication, the trade body says: “We would argue that to promote greater competition in the future, the mortgage market would now benefit for a period of stability, without any significant regulatory intervention for a while.

“Indeed, there might be a case for modest de-regulation in some areas – or at least clarification of the rules by the FCA – to encourage more competition in the market. We believe that the regulator could provide greater clarity where firms may feel that they are taking a risk if they opt for a liberal interpretation of the rules.

“In particular, it might be helpful for the FCA to make clear that it will not take an unnecessarily severe approach – either now or retrospectively – with firms over the interpretation of rules for assessing affordability for borrowers whose mortgages extend into retirement.

“The same could apply to rules covering mortgage sales and advice, which currently appear to discourage some firms from dealing with online and digital applications from customers. If that is indeed what is happening, it is at odds with what the FCA has said about encouraging mortgage market innovation and the use of modern channels of communication.”

The FCA will publish its feedback on the calls for input in March, as well as the details of any competition review.