Building Societies Association
Feature
Mortgage Market Review the long awaited package of proposed reforms is published
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Contact: Victoria Barnard Date: 20 Dec 2011 |
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On 19 December 2011, the FSA published the full package of proposed reforms under the Mortgage Market Review (MMR). This includes all proposed rules changes, the draft rules and a detailed cost benefit analysis.
In summary, the responsible lending proposals cover: Verification of Income (income must be verified in every instance, effectively banning self cert and fast track mortgages, but the FSA has not sought to prescribe the evidence a lender should obtain); affordability assessment (lenders will be required to take account of committed expenditure, basic essential expenditure, and basic quality of living costs, although the FSA is not proposing to prescribe the values that lenders must take into account for these items); interest rate stress testing and interest only (evidence of a believable repayment strategy must be obtained as part of the application process and again at least once during the term of the loan).
In relation to distribution and disclosure, the FSA are proposing a significant overhaul of the advising and selling process, by moving to a fully advised market except for in some very specific circumstances.
Commenting on the mortgage regulation proposals, Paul Broadhead, Head of Mortgage Policy at the BSA, said:
"The devil is always in the detail but these proposals seem to represent a welcome shift in policy by the FSA. No-one is looking for a regime that permits lax lending practices, however the original proposals were in danger of locking credit worthy borrowers out of the market or imprisoning those with immaculate payment records, but non-standard profiles, in their current homes and loans.
"This seems to have been avoided which is good news for the self-employed, those in existing self certified mortgages and people with negative equity. The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, whilst maintaining a sensible level of consumer protection.”
A number of the proposals appear to be sensible, and appear to embed practices already common and established across the mutual sector, however the BSA will be looking at the detail to ensure that the rules work in practice and there are no unintended consequences.
Broadhead continued: "We are pleased that the FSA has addressed our concerns. A thriving and competitive market, which encourages innovation to support the ever changing needs of would-be home owners and home movers, is in all our interests."
