FSA publishes Mortgage Market Review

19 October 2009 | By Robert Thickett

The Financial Services Authority has today called for self-cert mortgages to be banned, affordability tests on all mortgages and for buy-to-let to be regulated as part of its much anticipated Mortgage Market Review.

The proposals, published in the mortgage market review discussion paper, reflect 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.

And while the regulator says that there will be no read-across of the Retail Distribution Review to the mortgage market, it wants to apply the RDR’s adviser categories of ‘independent’ and ‘restricted’. It argues that the current labels of ‘whole of market’, ‘single’ and ‘tied’, “are not enhancing consumer understanding”.

It has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’s existing work on capital and liquidity.

The FSA says that the proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market.

But the FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.

The mortgage market now has until January 30 2010 to respond to the consultation paper, with a feedback statement published in March 2010.

It adds that Implementation will be phased, with the focus on speed for areas of high detriment, such as arrears.

Jon Pain, managing director of supervision at the FSA, says: “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.

“The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.

“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.”

Readers' comments (18)

Eddie Mackenzie | 19 Oct 2009 9:03 am
The above comments by the FSA will further dampen the housing recovery. The need to have a 'sensible' approach to mortgage lending is required. The terms the FSA hope to impose will deter clients looking for finance. Self-certification loans should remain due to the vast number of self-employed clients looking for finance.
Unsuitable or offensive? Report this comment
Bal | 19 Oct 2009 9:13 am
I think the FSA is over reacting regarding some of the new regulations recommended. I.E Self Cert is a innovitive product when used in the right situation - Self employed clients only with a large deposit, restrict the LTV 60-50% with a clear credit check. BTL is a commerical decision made by a borrower, are we (advisers) now expected to be sued / complained about if the client makes a bad investment choice. How about regulating some real villians - Estate Agents ???
Unsuitable or offensive? Report this comment
Bill Wells | 19 Oct 2009 9:22 am
They don't have a clue.

If the terms 'whole-of-market', 'tied' etc are not helping consumer understanding, who's fault is that ? The bloody idiots who devised the terminology.

The borrowers that have "suffered great financial distress" have lost their jobs. Their distress hasn't been caused by interest rates going down ! And that is why even the strictest affordability tests won't have any real impact - most people know what they can afford at outset but don't expect to be thrown on to the dole because of government mishandling of the economy and being beaten to a job by an immigrant who will work for half the wages, or by someone claiming benefits and moonlighting.

The people who are distressed are the first time buyers who need to raise a 15% deposit and then, having done so, being charged extortionate marginal rates of interest because they couldn't raise 25%

If this latest 'consultation' is anything like all those that have gone before then all their proposals are already 'done deals'.

Get rid of this insane government and the FSA and we might get back to some sort of normality.
Unsuitable or offensive? Report this comment
Ryszard Kuzminski | 19 Oct 2009 9:34 am
Yes responsible lending is a priority that mortgage lenders need to address as far as borrowers with arrears and adverse credit history are concerned. Self-cert/fast track should remain as there is a market place for this type of mortgage application for the self-employed and employed where income is commission based or contract work.
First Time Buyers need encouragement with 90% mortgages but at realistic interest rates.
Unsuitable or offensive? Report this comment
Anonymous | 19 Oct 2009 9:37 am
This just confirms what most honest decent brokers already know - that the FSA are as far removed from reality as their master, Gordon Brown is! The market is on its knees and these ill thought out measures will kill it stone dead. We have until May 2010 before Brown is forced from office by the voters and the FSA is disbanded by the incoming Conservative Government. In the meantime we all need to stand up and resist this madness before we are all dragged down with the failed FSA.
Unsuitable or offensive? Report this comment
Jez Mangley | 19 Oct 2009 9:44 am
I think the government wants to ban self-cert and fast-track mortgages to encourage the self-employed to declare higher profits and consequently pay higher tax. It's all about the money.
Unsuitable or offensive? Report this comment
GARY WRIGHT | 19 Oct 2009 9:47 am
After working in banking for almost 10 years, covering various 'sales' roles and running my own mortgage brokerage for the last 5 years, again the FSA have missed the problem area and point.

For me I have seen more damage, unaffordable lending, unaffordable repayments with CREDIT CARDS!!! not mortgages. How many clients do we see with a £800.00 pm mortgage but credit cards repayments of £600.00 pm, plus the finance for the BMW @ £500 pm.

Regulate credit cards & hp, then move on to mortgages.
Unsuitable or offensive? Report this comment
Gareth Smith | 19 Oct 2009 9:55 am
The industry in general for the past few years has been in denial over the level of fraudulent income disclosure in order to obtain a mortgage.

There is a place for self-cert but just because a person is self employed doesn't necessary say that person is not eleigible for a mortgage. If they have been in business for a few years they will have complted self assessments etc. That fact is that in my opinion self-cet has been abused by everyone from the lenders who sent BDM's round stating they only need 1 day trading etc to borrowers who have been fortunate to have built up a large deposit whilst keeping there income low for tax purposes.

By banning self cert the FSA are taking away demand that will ultimately reduce the future housing bubbles
Unsuitable or offensive? Report this comment
Anonymous | 19 Oct 2009 9:57 am
I don't think anyone should be surprised by these moves as they have been well signposted as on their way.
It is unfortunate though that customers are not being held responsible for their own actions. Declaring income/affordability incorrectly in order to obtain a mortgage is fraud. If lenders are happy to take the risk - in the right circumstances based on their own judgement - then, if the borrower has been fraudulent in applying and the lender reposes because their is sufficient security the borrower deserves everything he gets and more.
This is nanny state protectionism at its worse.
Unsuitable or offensive? Report this comment
Anonymous | 19 Oct 2009 10:33 am
UNSECURED LENDING IS THE PROBLEM, I echo the mail above, I have seen clients with no problem in affording their mortgage subsequently take masses on credit cards and HP, there are no affordablity checks here not even requests for proof of income, it is this lending that stretches the borrower, there is also no repayment plan on this type of credit, as we all know no-one ever pays more than the minimum payment, and then the debt hardly reduces, this credit is the problem and needs to be regulated, there is no point doing an affordablity test for a mortgage when the client can then take £100k further on credit cards!
Unsuitable or offensive? Report this comment