01 March 2012
The new regulatory regime for mortgages could be with us for a long time, so it is important that we get it right. In my earlier career, on the other side of the lending divide, working for the then Abbey National Building Society, I was responsible for the Society’s analysis and response to the new proposed legislation that was the Building Societies Act 1986. This was an exciting and radical change (no, seriously), particularly since the previous regime had been in place since the Building Societies Act 1962. Twenty-four years had elapsed between major Acts.
In more recent years, I have managed Legal & General’s analysis and response on mortgage regulation - MCOB in 2003/4 and the MMR - 2009 to date. The main provisions of the new proposals look set to be brought in during 2013 or 2014, so it will have been nearly ten years between the times that our working regulatory framework will have been amended. These things don’t come along very often, and I think that it will be a long, long time before the new regulator, the FCA, will want to review and amend the framework for our mortgage market. Hence, we need to get it right now as we will be living with it for a good deal of time to come.
So, can we live with what is being proposed? Well I believe we can
It’s clear, from how far the proposals contained in the most recent Consultation Paper, CP 11/31 are from those in the original 2009, that the FSA has done a great deal of listening. They’ve conducted a real consultation. They put out proposals, asked for research based responses, and have amended, and in many cases toned down, their proposals from these. Take product intervention for example. The original proposals suggested caps on loan to value, and loan to income, as well as restrictions on release of equity on remortgage or house moves. These were met with a robust push back from the market, saying the FSA was seeking to impose a “one size fits all” solution to diverse market issues. And they have listened - as none of these proposals have made it through to the latest Consultation Paper.
I believe the length and depth of the recession in the mortgage market has made the FSA think harder about how restrictive they seek to be. They seem keen to ensure the package of new measures are only brought in when the market is recovering. But decisions and rules made now, with the massive excesses of the market still very fresh in minds, will set the scene for quite possibly the next decade of mortgage advice and mortgage lending.
There are a couple of areas that concern me. Firstly the clamp down on interest only mortgages, which seem to be intended to make this into very much a nice product. Is this going too far, and is it a real restriction on informed adults making informed decisions how to manage their family finances over the longer term? There were obviously abuses of this product in the past, and it’s difficult to object to some sensible rules being brought in to ensure interest only is not used to over leverage affordability. A return to more benign conditions in the mortgage and housing markets may mean this is an entirely sensible way for people to borrow, with a market application wider than the niche now envisaged. Only time will tell.
The second example is the requirement for all but a few limited cases to be handled on a fully advised basis. On one hand, most intermediaries will welcome the fact lenders in branches or call centres, will be brought onto the same level playing field (fully qualified going through a full advice process). On the other hand, at some point in the future - will any firm be able to say they don’t wish to deal with certain customer groups - low loan to value second or third time buyers for example - on a streamlined, non advised basis? Do we really want our hands tied for the foreseeable future in this way?
What we get, following this Consultation Paper, we’re going to have to live with for a long time. We need to be sure we get it right.