and it will offer at least some opportunity for broker firms that can demonstrate their quality and ability to do business. mortgage


advisers


know their trade and the vast majority know their customers. on a personal, day to day level brokers understand clients, reassure them, hold their hands and help them sort their finances out well. in short, i trust my mortgage broker and he knows it. But, and it is a big but, the general public does not trust the general perception of a mortgage broker. and it is this that must change. the FSa’s proposals are in many ways a vote of confidence in financial


THE DAMAGE


With regulation comes the bill and this time the FSA estimates it will cost the industry between £47m to £170m per year in ongoing compliance costs. Changes to non-bank lenders’ capital compliance rules will cost the industry between £16m and £126.8m a year while distribution and disclosure compliance will be the largest one-off cost to the industry from £22m to £33m. The FSA estimates the MMR as a whole is likely to be net beneficial.


In 2010 the regulator was criticised for failing to do sufficient analysis on borrowers who would be locked out of homeownership and consequently this MMR paper was accompanied by reams of cost benefit analysis. It reveals the affordability assessment, the interest rate stress test and the interest-only proposals together are estimated to affect 2.5% of borrowers in subdued market conditions and 11.3% in boom market conditions.


But sub-prime or credit impaired borrowers will be worst hit with one in 10 being locked out of the market. FSA analysis also showed a whopping 69.7% of credit-impaired borrowers would not have been able to get a mortgage between 2005 and 2010 if MMR had been in place reflecting the “very poor underwriting standards” of the past. In today’s subdued conditions, the proposals would have a significant impact on 2.8% of self-employed reflecting the fact that a large proportion are interest-only borrowers. Just 0.4% of first-time buyers by contrast would be affected in today’s market.


advice, the diversity it brings to the retail banking market which is so dominated by a few large players, and (though they’d be loathe to admit it) the role of the broker. regulation will take this industry only so far. Brokers must regain the public’s trust. exams will help but ultimately it is down to the individual to keep standards high. the one aim of the mmr that no-one can quibble with is that it wants people to make the best decisions they can when they buy a home. i know of no broker who would say this wasn’t also their aim. it is high time the industry communicated that to the public at large. this, i’d say, is a golden opportunity.


Summary of proposals · Brokers will have no regulatory responsibility for affordability.


· Non-advised sales scrapped in favour of advice and execution- only sales.


· Vulnerable consumers including equity release, sale and rent back, right to buy and those who are consolidating debt will not be allowed to opt-out of advice. With the exception of sale and rent back consumers they can reject the advice and proceed to purchase on execution-only basis.


· High net worth borrowers will be given special treatment on affordability.


· Lenders must verify all income and demonstrate borrower affordability and “committed” expenditure (essentials like mort- gage payments and energy bills).


· Lenders will have to stress test affordability under different inter- est rate environments.


· Interest-only mortgages will stay but must be assessed on a repayment basis unless there is a believable strategy for repay- ing out of capital wealth.


· Lenders must not accept “speculative” repayment strategies such as house price appreciation.


· For credit impaired consumers consolidating debts the lender will be required either to assume debts will remain outstand- ing by including them as “committed expenditure” or repay the debts directly to the creditor.


· Lenders can waive the affordability rules when entering a new mortgage contract providing the borrower has a good repay- ment history on their existing deal. These arrangements do not compel the lender to lend.


· Lenders can lend into retirement.


· Lenders will be able to assess affordability over more than 25 years if appropriate and will not be forced to apply an affordabil- ity buffer for credit-impaired borrowers.


· FSA is clamping down on unfair arrears charges.


· Mortgages to fund business development may be exempt from new regulation.


· Non-bank lenders will be slapped with tougher capital require- ments.


· One in 40 would-be homeowners currently able to get a mort- gage will be shut out in the cold if the MMR goes ahead in its new format.


· Initial disclosure document and double KFI trigger will be scrapped in favour of verbal explanations.


· Independent and restricted labels dropped. · Bridging put under microscope. · Equity release will become a single market.


mortgage introducer JANUARY 2012 19


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