Regulators attempt to make their mark

This week could be a big one for the industry as the Financial Services Authority finally reveals its thoughts on the thorny issue of commission. The FSA has spent a long time pondering how to address the alleged failings of the commission-led market and on Wednesday, many interested parties will be keen to see how the watchdog plans to improve things.

It’s a brave soul that goes into battle with commission. Many have fallen on the comm-ission sword, unable to construct a replacement regime that works. As a result, confidence that the FSA’s proposals will move the debate on is low. What is certain is that commission has never shaken off its reputation as being at the heart of most mis-selling scandals.

But commission isn’t the only issue being stirred in the mortgage melting pot. The European Commission is attempting to further shake up the market by examining whether early repayment charges are too high. The forthcoming Consumer Credit Directive states they should be capped at a maximum of 1%.

The EC is well known for two things. One is never bringing in legislation quickly. It comes up with an idea, rattles it around member states, a few kick up a fuss and if they are powerful, the proposals never see the light of day. Even if anything does get ratified, bureaucrats spend so long poring over the details it can take years before it’s introduced. It’s also known for its micro outlook – being unable to see the big picture. For a large organisation, it has a habit of picking niche areas to tackle in which it lacks the expertise to make sensible decisions.

But will capping ERCs improve the market in the UK? One could argue they are unfair and restrict the flexibility of home owners to switch deals when they want. They also penalise prudent borrowers who attempt to pay their mortgages off early.

But they could also be seen as a necessary evil that allows lenders to offer cheap deals in the first place. And if these cheap deals didn’t exist, not so many home buyers would be able to repay their mortgages early.

When I rang the Council of Mortgage Lenders, the British Bankers’ Association and the Bank of England and asked how many borrowers end up paying ERCs, the answer was simple – none of them collect that information. Hopefully, the EC is working from hard figures. I’d love to see them.

Obviously lenders are against a cap. The Intermediary Mortgage Lenders Association opposes the proposals and individual lenders might get vocal if the EC proposals look like becoming a reality. If that is the case, there’s no doubt Halifax will be one of the loudest voices. Having seen its market share shrink by more than half this month, it will have to do all it can to retain the borrowers it has left.