Latest MMR is tamer but still heralds radical changes
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The final consultation paper for the Mortgage Market Review has arrived and the impression is that the Financial Services Authority has moved closer to the industry’s view.
Much of the rules about income verifications and extra affordability checks were already known but there is plenty of new material.
The transitional arrangements have been relaxed to give help to so-called mortgage prisoners and those in negative equity.
This is a sensible development that recognises poor market conditions and responds to industry feedback.
It benefits no one if borrowers can not move house or mortgage and opens the door to consumer detriment by lenders if customers are trapped, despite vague Treating Customers Fairly principles.
There is also a relaxation of interest-only rules which will now not be banned and it is recognised they have a role to play in the market, albeit far, far more limited than the boom years.
Fast track has survived too but again in a more limited role and still subject to income verification and more stringent affordability checks.
These moderate adjustments are welcome to the industry but there was some more radical changes afoot in the paper.
Chief among was the proposal to end non-advised mortgage sales, which could have profound impact.
Firstly, it seems to signal the end of unregulated mortgage packagers who offer no advice and operate as a distributor.
Having being bloodied by market conditions it seems the regulator may finally be trying to kill off this segment of the market.
But the proposals are not yet rules and the consultation continues but it appears to be a significant move.
A ban on non-advised sales will also have a huge impact on lenders who will now need to end information-only sales.
It will mean a huge cost to train up their staff particularly those working in telephone sales and online sales.
HSBC told me earlier this year that online and telephone sales were a key driver of business growth in mortgages.
It may well have to re-think this strategy now or at least ensure that all its staff are trained to the appropriate levels in the FSA proposals.
This could spell good news for brokers as more lenders decide to use brokers instead of training more staff.
The flip side is that once lenders train their staff to advice level it will focus more on its direct proposition, something the FSA predicts may happen.
Another area given a shake-up is the bridging loans sector, now set to be defined as a regulated mortgage contract of 12 months or less
Hopefully this will allow a set of clear figures about the size of the sector to emerge, something that has proven as elusive as a crock of gold at the end of a rainbow.
Some bridging statistics were helpfully provided to the FSA by trade body, the Association of Short-Term Lenders.
It shows that regulated bridging loans have actually declined slightly as a proportion of the market since 2007.
The boom has come from unregulated loans, which have doubled in the last four years, a number that will undoubtedly interest to the regulator.
Bridging is set to be regulated in the European mortgage directive but warning from the FSA and the Association of Mortgage Intermediaries on misuse of bridging loans by brokers means we haven’t heard the last of it yet.
Other highlights include the whopping cost of the proposals at up to £170m a year, although the caveat comes from a huge range for the cost of capital compliance for non-banks.
And that up to 17%, with a central estimate of 11.3%, of all mortgages would have been banned in the boom time - a hefty chunk of customers the FSA now thinks is effectively unsafe lending.
Overall, it’s an interesting document that is tamer than its previous efforts, potentially good for brokers and welcomed by the industry.
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