The Mortgage Market Review should be delayed so that so-called mortgage prisoners get a chance to remortgage, says the regulator’s advisory panel.
The Financial Services Consumer Panel launched its six-point plan for a sustainable and healthy mortgage market last week.
It says there is a danger people with mortgages taken out during the credit boom will not be able to remortgage if the MMR comes in before they reach the end of their deals because they will not meet lenders’ stricter affordability rules.
The FSCP could not put a time frame on when it wants to see the MMR introduced but says it could be later than 2012 if the market has not recovered by then.
The report says: “Timing will be crucial. There is a danger that lenders will reject mortgages which they view as not complying with the MMR and so further restrict consumers’ options during a period of lending restraint.
“To avert this danger, implementation of new affordability rules should be delayed until the market has demonstrably recovered.”
Other recommendations include the Financial Services Authority not introducing LTV caps, not banning interest-only mortgages and that the mortgage term is not restricted to 25 years.
It says the regulator should not introduce an additional buffer for credit-impaired borrowers and does not think the current stress-testing proposals are adequate.
Adam Phillips, chairman of the FSCP, says: “Over the last few years we’ve seen reckless lending by banks. Stronger regulation is undoubtedly needed to stamp out bad behaviour. But there is a need for a balanced approach which takes full account of the social implications of any change.”