Mortgage Market Review


Advice is as important as ever The new regime will increase costs and could even see some


existing advisers being refused approval. But the best will prosper


by Paul


Broadhead, head of mortgage policy, BSA


The Financial Services Authority last month published the latest consultation paper emanating from its review of the mortgage market. This paper, in common with the overall review has two broad aims – a mortgage market that is sustainable for all participants and a flexible market that works better for consumers. Good, sensible aims that I don’t think many would disagree with. However, whether these aims will actually be fulfilled through the proposals we have seen so far appears, at least to me, to be questionable. In fairness, the latest consultation on


responsible lending does contain some sensible and well intentioned proposals. That said, there is a school of thought that the proposals are too little too late, don’t address the problems in the mortgage market and some question whether the FSA should be changing the rules at all. The FSA has made it clear that they believe the market has worked well for the majority of consumers and it has also worked well for a number of lenders and intermediaries. I don’t doubt that there are customers that have not been treated fairly, some have been sold products inappropriate for their circumstances and some on the margins of home ownership should perhaps not have been granted a mortgage in the first place. There is also evidence via the FSA enforcement programme, that some lenders and brokers have exploited the


market, and their customers and made substantial financial gains for themselves – it is absolutely right that this should be addressed.


ARReARs And AppRoved peRsons


At the beginning of the year, the FSA focussed on arrears handling and expansion of its approved persons regime. Generally industry is supportive of the arrears handling proposals, although some of the proposals, such as recording all arrears calls, do cause practical difficulties for smaller lenders. Though it is rare for a trade body to praise the regulator, credit where credit is due - they listened to BSA concerns and explicitly stated that smaller building societies could apply for a waiver. The approved persons proposals highlighted different questions, particularly whether to expand the regime to lenders’ branch advisers or solely to the intermediary market. Many brokers will strongly disagree with my view but I maintain that the new requirements should not apply to non advised sales by lenders. It is a fact that the distribution and advice channel is where fraud is concentrated, and therefore it is appropriate that the approved persons requirements should focus primarily on intermediary channels. Whether you agree with me or not, we now know that the FSA doesn’t and the rules will apply to all. I also question the logic of finalising this regime prior to the review of distribution, advice and selling standards at the end of the year.


For both brokers and lenders the new


regime will increase costs and could even see some existing advisers being refused approval. This could naturally mean that


28 mortgAge introducer AUGUST 2010


the number of brokers will fall, and indeed they already have following the difficulties of recent years. But surely, given the levels of mortgage lending, fewer advisers that are good quality and deliver confidence to consumers must be preferable? The regime will be implemented in 2011, and followed by the policy statement on responsible lending, which contains the most ambitious and contentious plans to change the mortgage market.


Responsible lending The concept of responsible lending has been used by the FSA since ‘M Day’ in 2004, although the concept has never really been defined. Are the economic problems seen in the UK a result of widespread, irresponsible lending by UK mortgage lenders? Of course not; as I have already mentioned the FSA believe the market has worked well for the majority of borrowers. Has there been irresponsible lending by some lenders? Undoubtedly yes, so shouldn’t the FSA deal directly with those firms rather than introducing costly rule changes across the whole of the market?


Despite this, the FSA has its own view and believes that there are a number of areas where detailed rules and intrusive regulatory intervention are required. These are: • Verification of income • Affordability assessments • Interest only loans • Toxic product combinations The FSA has been clear since the original discussion paper last year that it believes income verification should always be provided, removing the ability for lenders to offer self-cert, or fast track loans.


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