After much anticipation, a couple of years of consultation and some stand-offs, the Financial Services Authority’s final Mortgage Market Review proposals were published a few days before Christmas.
This publication takes account of feedback from the earlier consultations and, thankfully, demonstrates a significant and helpful change from the controversial proposals of the summer of 2010.
I am reassured that the FSA seems to be taking a more pragmatic approach and is attempting to allow some flexibility to ensure that credit-worthy borrowers are not locked out of the mortgage market.
Some of the changes to the original proposals relate to the distribution of mortgages.
I am reassured that the FSA seems to be taking a more pragmatic and flexible approach
The FSA has, for example, maintained its stance that intermediaries will not be required to assess affordability, but to simply check that the borrower fits the expected parameters of the lender’s criteria.
I find it difficult to see how brokers can advise borrowers effectively without taking into account the affordability of the loan.
In practice, the majority of brokers will assess affordability as a matter of course but requiring this in the regulations would ensure the delivery of consistent consumer outcomes.
Another change made by the regulator is the removal of non-advised sales from the market.
The FSA is proposing that all mortgage sales where there is any interactive dialogue between customers and lenders or advisers, whether face-to-face, over the telephone or through social media, will now constitute advised sales.
The FSA has concluded that the option of a non-advised sales process is confusing for customers.
Execution-only sales will be permitted in limited circumstances but no lender will be able to designate themselves as execution-only. The lack of attention to transitional arrangements in previous consultation papers had given us cause for concern.
We feared that with lenders needing to comply with new regulations, this could leave a number of existing borrowers, such as the self-employed, facing difficulties when remortgaging or moving home.
The FSA has sought to address our fears, although we will need to analyse the proposals over the coming months to ensure it has succeeded.
While the proposals seem pretty sensible, the timing for implementation remains an issue. We still have a fragile market with limited growth expected in the short term.
Implementing a new regulatory regime against this backdrop presents serious challenges.
The timing also needs to take account of the proposed European mortgage directive.
Again, the FSA recognises this, but has also stated that it will not wait indefinitely and will press ahead with MMR implementation as it deems appropriate.
I am pleased that the FSA has addressed many of our initial concerns.
If I was re-marking its proposals, my instinct would be to grant it a higher grade.
But we will need to examine the detail to ensure that the proposal will deliver the intended outcomes.