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News review
News review
A look at the major issues of the
month by Nia Williams
T
he major news this month has been administration charges where a borrower is borrowers have to take some responsibility for
the publication of the FSA’s Mortgage adhering to an arrangement to repay arrears; the loans they take out, whereas the FSA seems
Market Review discussion paper (DP). and prohibiting the charging of early to think borrowers need protecting from
No doubt you have all read the 118 themselves. Commenting on this, Ed said: “Of
page document by now and will have your circle6
redemption charges on arrears fees.
Requiring all mortgage advisers to be course borrowers have some responsibility for
own view of what the FSA is proposing. Below personally accountable to the FSA. The DP what they borrow but during our research for
is a snippet of what is being proposed and an proposes extending the Approved Persons these proposals we’ve seen how people approach
exclusive interview with Ed Harley, head of regime to all mortgage advisers who deal with taking out a mortgage. They don’t seem to
mortgage policy at the FSA. You can find the consumers and to advisers and/or arrangers behave rationally when it comes to buying a
industry’s view on our website who are responsible for overseeing home. We feel we need to protect them by
mortgageintroducer.com getting rid of any risky options.”
The Financial Services Authority’s (FSA) circle6
compliance.
And, of course, calling for the FSA to regulate The decision on buy-to-let regulation is
main aim for the reforms proposed is to ensure buy-to-let and all lending secured on a home. down to the Treasury. As Ed said: “Our scope
that it “works better for consumers and is The FSA said: “The proposals are designed to for regulation is set by the Treasury but we’re
sustainable for all market participants”. tackle the problems identified while maintaining having discussions with them and should
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The review's key features are: a vibrant and sustainable market. But the FSA hear this winter. We’ve seen that arrears have
Imposing affordability tests for all mortgages - has not ruled out further change if the initial been much higher in this sector and we’ve seen
all borrowers will have to show they have proposals do not have sufficient effect, including that some people have been able to get a buy-
sufficient spare income to finance the caps on loan-to-value, loan-to-income or debt- to-let mortgage more easily that a normal
repayment of their new home loans. The DP to-income.” mortgage. This is what we need to protect
proposes making the lender ultimately Speaking to me on the morning the DP was against.”
responsible in every sale for verifying released, Ed Harley, head of mortgage policy at Asked when the proposals will be
affordability. It also proposes that in each case the FSA, said: “The real change that we want to implemented, Ed said: “Nothing in the DP
a lender should assess the consumer's ability see is the affordability test and verification of should stop any potential recovery in the
to repay, i.e. calculate the free disposable income. That is at the heart of our proposals. We housing market but we’re aware that some of
income a consumer has to pay for the can see that this may mean the end of certain our proposals will have cost implications, such
mortgage. The FSA hasn’t banned 100% loans types of mortgage but it is better to ban them as the affordability checks. We’re very conscious
or introduced limits through loan-to-value or than to let them go into arrears. The other main of the need to be sensitive in the timing of the
loan-to-income, although says it will impose issues for your readers are buy-to-let plus introduction of the proposals.”
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such caps if the affordability tests don’t work. making sure that all advisers are individually The last words should be down to him: “I can
Banning ‘self-cert' mortgages because of the registered and approved by us. That will affect say that we’re confident that what we’ve set out
required verification of borrowers' income. around 14,000 individuals.” in the DP is well-thought through judging by
The FSA has said that tax returns could be The self-employed will also be affected by the what we’ve found and what those we’ve spoken
used to verify the income of the self-employed measures. I put it to Ed that for many people tax to have said. However, it is just a discussion
but they are open to different forms of proof returns would not give a good indication of paper and we want to hear from everyone to get
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of income. actual earnings so would that mean most of the their views. Response to it so far has been fairly
Banning the sale of products which contain self-employed would end up either unable to get positive – people understand where we’re
certain ‘toxic combinations' of characteristics a mortgage or become trapped with the lender coming from. But you’ll always get those who
that put borrowers at risk. This would be they’re currently with. agree with what we’re trying to do and those
something like selling a high loan-to-value “A freelancer or self-employed person must be who don’t. What we really need now is for lots
product to someone with arrears or other able to show some proof of income,” he said. “At of feedback.”
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debt. the moment we are flexible in the type of The discussion paper is out for discussion
Banning arrears charges when a borrower is documentation or evidence that we will require until 30 January 2010 and the FSA will be
already making payments on the debt and but I’m sure that an accountant’s statement or actively seeking views from consumer groups
ensuring firms do not profit from people in bank statements would be fine. We don’t know and industry. A feedback statement will be
arrears. The FSA will publish specific exactly how we’ll frame it but we do want to be published in March. Implementation will be
proposals in January to toughen up rules on flexible in what we use.” phased, with the focus on speed for areas of high
arrears handling as well as banning A criticism of the proposals has been that detriment, such as arrears.
November 2009 Mortgage Introducer www.mortgageintroducer.com
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