Analysis: Mortgage Market Review


Advice is critical, let’s make it good the other relevant bit for by


Sarah Davidson, editor,


Mortgage Introducer


the latest instalment of the mortgage market review, published the week before christmas last year, brings the Financial Services authority’s vision of a brave new mortgage market together in one weighty tome. it is very nearly 1,000 pages long. With good reason: there is a


lot to say about the mortgage market. it is perhaps the single biggest component of the economy with £4.26 trillion of Britain’s wealth tied up in housing. FSa officials are confident


that after almost two years of consultation with the industry and consumer bodies, this version of the mmr is very nearly there. But have they got it right this time and what will their proposals mean in practice for mortgage brokers?


Changes Perhaps the biggest change


in this paper from its predecessors is that the FSa has guillotined non- advised sales from the market altogether. the customer, they said, didn’t know the difference and thought they’d been given advice even when they hadn’t. one’s tempted to roll out the proverbial no, ahem, Sherlock. it is the drum that the


association of mortgage intermediaries has been banging


since time


immemorial. and for brokers it is a win.


brokers is that “vulnerable” groups of consumers will have to get advice, although equity release, right to buy and people consolidating debts won’t be forced to take it. Sale and rent back borrowers meanwhile will not only have to get advice, they will have to follow it. this shift signifies an important change. the FSa has moved (for now) from the blunt instrument of product regulation to the much more preferable regulation of advice and advisers. this is important because


before this paper FSa chairman Lord adair turner said “some financial products and advice may be best delivered with the help of the State”. the industry was quite


rightly outraged that a non-political body should pronounce such a thing. and to give the FSa credit where it is due, they listened and have acted. it is true in a free market


that some people win while others lose. the new mmr proposals do not intend to eradicate this feature but they will protect the vulnerable, which has to be lauded.


Challenges the key thing now is that


TIMELINE


January 2010 ................................first MMR paper CP 10/2 Arrears and Approved Persons published July 2010 ......................................................................MMR CP 10/16 Responsible Lending published November 2010 ..................................................MMR CP 10/28 Distribution and Disclosure published December 2011 .................................MMR CP 11/31 Final package of proposed measures published 30th March 2012 .......................................................................................CP 11/31 consultation closes Summer 2012 .................................................................................................. final draft rules published 2013 ........................................................................................................... final regulation implemented


18 mortgage introducer JANUARY 2012


the industry steps up to this challenge. there are two sides to this. one is regulatory but the other is down to personal responsibility. the mmr proposals have preserved the individual registration of approved persons and all mortgage sales people and require all advisers to be qualified up to cemap level 3. the exams will have to


be passed when the rest of the mmr is implemented which won’t be before 2013 and there is still no date for the implementation of the register. But the personal side of the coin is something the industry has control over.


Direct vs broker the week the paper was published there was a flurry of worry (perpetuated by the FSa’s own analysis) that by giving lenders the responsibility to verify income and assess affordability, lenders might be expected to become more involved in the application process. this could lead them to prefer direct sales over introduced sales, suggested the FSa. the consultancy firm


oxera went further saying: “Lenders are likely to reduce the number of intermediaries they work with and rely more on their direct sales forces.”


“The FSA has moved (for now) from the blunt instrument of product regula- tion to the much more preferable regulation of advice and advisers”


no-one can predict the


future but this may or may not be how things actually transpire. the cost of “levelling the playing field” for bank advisers and mortgage sellers will be high and it is unlikely that there will be one way of doing business for all models. there is also a significant proportion of remortgage business currently arranged directly, usually over the phone with unqualified advisers, which may be disproportionately affected by the move to advice. it is unlikely that all of this


will transfer to the execution- only bracket where a customer must know exactly which deal they want with no discussion of their options. Banks will be thinking carefully about how they deal with this change


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