The CML says it shares the FSA’s vision to “deliver a sustainable market for all participants and which is flexible for consumers”, but believes the policy and rules as drafted will not deliver these outcomes.
The CML calls on the government to ensure a proper policy debate, and calls on the FSA to take greater account of the market environment and to reconsult on a more proportionate set of rules after a thorough and complete impact analysis.
In summary, the CML believes that:
- This is not simply a narrow consultation on an issue of parochial interest to the mortgage industry and mortgage borrowers. It reflects a financial regulatory approach and philosophy based on reducing “conduct risk” which has broader social, economic, housing, political and regulatory implications, as identified by FSA chairman Lord Turner. The CML believes this approach is flawed and should be urgently reviewed by Treasury Ministers.
- The regulation of housing finance should support the government’s central and local government housing policies. CP 10/16 does not address the question of where consumers will live if they are unable to become home-owners in the future. The CML believes that Communities and Local Government Ministers should explain clearly what kind of regulation will best support their housing policies.
- The cost benefit analysis in CP 10/16 falls well short of what should be expected to support such a major market intervention. The CML calls on the FSA to re-consult on all its responsible lending rules with a complete cost benefit analysis.
- The FSA’s proposals do not take due account of the correction in the market that has already occurred.
- The FSA has not taken due account of lenders’ likely behavioural response to heightened regulatory risks.
- The FSA has not taken due account of the new prudential requirements on firms’ capital and liquidity levels, and their knock on impact on future capacity to lend.
- The FSA has not taken due account of consumer behaviour. It has treated consumers collectively as a homogeneous group which may act “irrationally” unless protected from irresponsible borrowing.
Michael Coogan, director general of the CML, says: “Our response puts paid to the myth that lenders simply want to retain the status quo.
“We fully recognise that regulatory change can help to embed a better mortgage market for the long term – but this particular set of proposals would end up doing more harm than good. We strongly urge both the FSA itself and relevant government Ministers to take stock of all the evidence before proceeding.
“If implemented as drafted, these rules would likely have the effect of creating significant financial exclusion among perfectly creditworthy borrowers. In turn, this has wider consequences for housing and wider society, and would exacerbate the generational wealth divide that already exists. We urgently need a proper public policy debate on how housing finance can help the government deliver its housing policy, and to review whether the risk-averse approach which the FSA has adopted would serve mortgage borrowers or undermine their reasonable aspirations to become home owners.”