Compliance costs for the Financial Services Authority’s Mortgage Market Review distribution and disclosure paper could amount to a one-off cost of up to £50m and a further £2m every year for the mortgage industry, an FSA-commissioned report shows.
In its cost benefit analysis of the proposals an FSA-commissioned report by Oxera shows costs are etsimated to be between £39m and £50m in one-off payments for firms.
It states: “Total compliance costs for the proposals for which draft rules are contained in this CP are estimated to be up to somewhere between £39m and £50m for one-off costs and up to £2m per annum for ongoing costs.”
The report states that sales standards will incur an additional £1m a year cost to firms and a one-off £0.8m cost.
But Oxera estimates that a significant majority of firms selling through a non-advised route already conduct an appropriateness assessment which is similar to that which we are consulting on.
This implies that a large proportion of non-advised sales already meet the proposed requirements.
The proposal to require all sellers, including those who do not give advice, to hold a Level 3 qualification, CeMap equivalent will cost between £17m and £28m as a one-off cost, which will fall on lenders who need to train non-advised mortgage sellers.
The report states : “Where we estimated that the cost per non-advised seller to get a qualification to be in the region of £5,600, including the opportunity cost of time. This implies one-off compliance costs of between £17m and £28m. These figures are conservative estimates since they assume no non-advised sellers currently active in the industry already hold a qualification.
“Actual costs are expected to be well below this range, given our evidence that most lenders require or encourage their non-advised sellers to have a qualification.
Complaince costs associated with simplifying the labels currently in place so they broadly align with those used in the retail investment sector have been estimated by Oxera at £17m.
Oxera estimates that most firms will retain their ‘current’ status with ‘whole of market’ firms becoming ‘independent’ and ‘limited and single’ firms becoming ‘restricted’.
The replacement of the Initial Disclosure Document and Key Facts Illustration requirements will cost £1.7m as a one-off and £0.7m every year.
Changes to record keeping is estimated to cost £0.3m every year.
The FSA estimates it will also cost itself a one-off cost of £175,000.