Paul Broadhead, BSA Head of Mortgages & Housing, takes a look at the regulation of the mortgage market and UK financial services more widely - what we've seen in 2023 and what to look out for in 2024. First published in Mortgage Finance Gazette.
Before we head into the new year and focus on 2024 plans and priorities, not to mention personal resolutions, I thought I would take a moment to look back on 2023.
It has obviously been a year of many challenges for consumers. The ongoing hikes in interest rates, high inflation and the wider cost of living crisis have led to reduced mortgage affordability, extended mortgage terms and rising mortgage arrears.
Recently it seems to be the norm, at least in our industry, that with every new crisis comes new rules and regulations, and the challenges in 2023 were no exception with the launch of the new Mortgage Charter in June. The Charter sets out standards that lenders, who sign up to the voluntary Charter, will adopt to help borrowers struggling to meet their mortgage payments. It was created over a busy weekend in June, following a meeting between the largest mortgage lenders, the regulator and the Chancellor. Its final form was a solution-focused agreement that built on the extensive support lenders were already offering their borrowers, so it wasn’t surprising that a good number of lenders quickly signed up.
Looking more widely at the regulation of UK financial services, in our post-Brexit world the regulators were already using their new found freedoms to re-examine the rule books to review 40 years of ‘cut and pasted’ EU regulation. The Prudential Regulation Authority (PRA), was one of the first out of the starting blocks with their proposed Strong & Simple Prudential Framework in 2021. We warmly welcomed their consultation on this, which promises a more proportionate and effective approach for small and medium sized organisations. This is a once in a generation opportunity for the PRA to reduce the regulatory burden while retaining the robustness of the framework, so we appreciate it must take the time to do it once, and do it well. But in two years the project has progressed at a snail’s pace and in 2024 we must see some real progress towards these much needed changes.
When the simpler regime is implemented, small firms will have the choice to opt in or out. Basel 3.1 is the alternative for those who opt out, as well as for those who are over the size threshold for the simpler regime and those who use internal models to calculate capital requirements. The PRA is also consulting on Basel 3.1 and while we broadly support its ambitions, we are also keen to raise, and hopefully avoid, potential unintended consequences, such as for self-build and holiday lets.
Of course, the biggest regulatory change in 2023 has been the introduction of the Financial Conduct Authority’s (FCA) Consumer Duty, which is aimed at ensuring good outcomes for retail customers. As well as delivering good customer outcomes, the Duty also requires organisations to evidence how those outcomes are being met. I was pleased that the BSA worked in collaboration with the Association of Mortgage Intermediaries (AMI), UK Finance and Intermediary Mortgage Lenders Association (IMLA) to produce an industry approach to the Fair Value Assessment. As with the Mortgage Charter, I’m a firm believer that the best results can only be achieved when all interested parties work together towards a common goal.
Which brings me to my conclusion, in 2023 we have clearly seen a lot happening in the regulatory world of UK financial services, and individually it all has strong and worthy ambitions. But many of these initiatives are being developed in isolation, without a wider over-arching strategy of how they will interact and work together. This concerns me, as there is a real danger that unintentionally there will be clauses that will stifle, rather than encourage, innovation, progress and ultimately good consumer outcomes. Perhaps being more collaborative could be a good New Year’s resolution for all our regulators!
This article was first published in Mortgage Finance Gazette