The Bigger Issue
Last month the Financial Services Autho
on the Mortgage Market Review: CP10/2 Each month Mortgage Introducer takes a look at the bigger issues. This m
From a lender’s perspective, the latest MMR consultation paper on Distribution and Disclosure appears likely to be far less controversial than the Responsible Lending paper issued in the summer. More transparency and disclosure will lead to slightly more competition. New qualification requirements should create a more level playing field and more consistent professional standards. And increased reporting will give our regulator the opportunity to develop a more insightful understanding of the market. While there will be costs to satisfying the new requirements, they appear likely to move our industry forward. One area of frequent comment has been the role of
intermediaries in income validation and affordability assessment. There are clear benefits to verifying income and assessing affordability at the point-of-sale. When verifying income, customers typically have their income documentation to hand and can be given immediate feedback if what they’re offering is – or is not – likely to be sufficient. When assessing affordability, surely the customer will be more engaged if the budget planner is built right in front of their eyes, and tailored to their circumstances, rather than reduced to pieces of data to be fed to a lender’s calculation engine? However, there are also benefits to central assessment of income and affordability. Conflicts of interest are removed, and larger lenders are able to access a broad range of data sources, including credit-bureaux, to validate the borrower’s claims and assumptions. Neither approach is perfect, but in our view there’s no need to choose between them. At Abbey for Intermediaries, we have always seen ourselves
as ultimately responsible for income verification and affordability assessment. Regardless of the FSA’s requirements, I suspect we will continue to require brokers to validate a customer’s income and assess affordability.
It’s hard to imagine how
you can give appropriate advice to a borrower without these basic steps. So, as a lender, the Distribution and Disclosure CP appears to be a step in the right direction. Our primary concern now is that we should not lose sight of the Responsible Lending CP. The consultation may have closed, but public debate has barely begun.
Iain Laing, chief credit officer, Santander
This Consultation Paper recognises the importance of intermediaries to the UK mortgage market and we welcome the FSA’s proposed level playing that will require all advisors to have Level 3 qualifications and operate under a mortgage sales code of ethics. Transparency is a strong theme of the paper. The volume of
brokered business in the UK supports our view that the broking proposition remains a strong one and disclosing whether your advice is whole of market and whether you advise upon direct deals does not, in our opinion, present good brokers with loyal client bases with any real issues.
Many brokers will breathe a sigh of relief that client fees are not mandatory. The rejection of the fee based business model will ensure everyone can get mortgage advice. But that brokers can charge a fee, if they wish, where advice has been given and then used by consumers to obtain direct deals is a welcome recognition of the effort and skill brokers offer.
It seems reasonable to us that consumers should expect
more clarity over rolled up fees and though technology will likely provide a solution for the cumbersome production of two KFIs in these instances, it is unlikely the consumer will thank us for these.
Likewise we believe the loss of the suitability letter is unfortunate as it is a useful consumer record of what is being sold and why.
Confusion continues around the notions of appropriateness
and affordability. We welcome the fact that non-advised sales must take into account affordability issues but understand that while any sale should always assess the appropriateness of a loan for a borrower, this will be problematic when affordability rightly remains the preserve of lenders. This dual responsibility will always create tension but is unavoidable given the nature of the transaction. As with all plans, the implementation will be the key to its success but for now this gets a
Gemma Harle, managing director, TenetLime
welcome seven out of ten.
Our experts have had their say, now it’s your turn to have yours. Visit
www.mortgageintroducer.com and vote for the expert you think makes most 18 MoRtgAge intRoduCeR DECEMBER 2010
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