Recent regulatory developments have provided a welcome opportunity for the industry to help shape the  UK mortgage market for the next decade and beyond, for all types of borrowers. It’s crucial that  regulatory change takes place alongside the Government’s promised long-term housing strategy, to create an environment where homes are more affordable, more available and more appropriate to the needs of those who will live in them.

The Building Societies Conference in May offered a timely opportunity to discuss the future of mortgage lending and the regulatory developments that will help shape that future. We asked if the regulatory  pendulum has swung too far towards caution, prioritising detailed rules at the expense of access to the benefits of homeownership for many creditworthy families. Continuing the conversation from the Conference session, this article delves deeper into insights shared by the session speakers.
 

View from the regulator
Emad Aladhal, Financial Conduct Authority

Speaking at the Building Societies Annual Conference in May, I was encouraged by the strong sense of purpose in the room to support communities.

Together we’ve built a safer and more resilient mortgage market, with 99% of consumers keeping track with their mortgages in a higher interest environment. But the needs of consumers are changing. We too need to change to support a market that serves everyone.

Home ownership is an increasingly  challenging aspiration for many. More consumers are borrowing into later life and needing to access  housing wealth to provide for retirement. We have a collective set of challenges to make sure the sector is ready to support people at different stages in their lives.

That’s why we launched our Mortgage Rule Review. Our recent statement on flexibility in our existing interest rate stress test has already prompted firms to act, helping more borrowers access mortgages. We’ve welcomed the thoughtful engagement with our consultation on proposals to make it easier, faster  and cheaper for borrowers to make changes to their mortgage.

Consumer needs are changing, the speed of innovation means the market is also changing, and in turn how we support consumers is evolving. We have just opened a discussion on how we can evolve our mortgage rules to help more people access sustainable home ownership and create a market that’s fit for the future.

We see this as a collective effort and any changes to rules will only be one part of the story. The  discussion is open until 19 September. We will be engaging with stakeholders to hear their views and  welcome feedback on how we can balance our rules to promote innovation, with strong consumer protection. By working together, we can make meaningful change to support consumers and help drive growth.

The lender's perspective
Ben Merritt, Yorkshire Building Society

The question we are asking is 'what next for first-time buyers?'. Aspiring homeowners are the driving force in the housing market, powering entire chains, yet have had it particularly tough amidst spiralling house prices and living costs far outstripping earnings growth.

The removal of Help to Buy and now Stamp Duty incentives is pushing homeownership even further out of reach for many. We continue to call on government to replace such support for this vital borrower group.

The building society sector has shown true innovation with recent low-deposit product offerings, but we recognise that deposit is just one of the challenges, and affordability remains a key issue for many.

We have urged a regulatory rethink, so welcome the FCA's recent clarification around stress-testing, and the publication of the Mortgage Rule review containing further points for potential reform. Already, we and other lenders are making changes to how we assess borrowers' affordability to lend them more.

The regulators' recent announcement to review the loan-to-income flow limit - something we have long campaigned for - is further good news. We are taking advantage of the option to disapply the existing 15% limit pending the outcome of the review, which means we will be able to help potentially thousands more first-time buyers, starting right away by offering new product solutions.

Longer term, the industry must build on this positive momentum by coming together to innovate and being brave enough to replace established principles with new ones more suited to today's mortgage and housing market - featuring great self-employment, multigenerational living, longer life expectancy and different working habits.

To support the entire homeownership journey, we need to look at everything - from holistic solutions to the housing shortage, to regulation - through a fresh lens.

The lender's perspective
Sarah Brown, Coventry Building Society

The FCA’s consultation on mortgage flexibility marks a positive step forward for borrowers and lenders. proposals to remove the advice trigger for execution-only remortgages, streamlining affordability checks for remortgage and term reduction requests and recent reminders around stress rate flexibility  offer a valuable opportunity for lenders to rethink how they can better support members and customers into homeownership.

At Coventry Building Society, our members are at the heart of everything we do. It’s in everyone’s best  interest to offer mortgages that are affordable both now and in the long term. We welcome the FCA’s proposals and believe they create opportunities for lenders to be more flexible and supportive, while keeping good customer outcomes front and centre.

While these measures are helpful, the FCA’s discussion paper on broader mortgage market reform will  provide a timely opportunity to consider what further changes could be made to ensure we are collectively building a fairer, more accessible and resilient market for the future. Of course, regulation and lender flexibility are only part of the puzzle. As highlighted in our panel discussion at the Building Societies Conference, increasing the supply of homes that meet the needs of today’s market is essential.  Without addressing the challenge with housing supply, there’s a real risk that easing mortgage  affordability criteria and advice requirements could prove inflationary, driving up house prices further in in already stretched market. To achieve the desired outcomes for consumers and the wider economy, it’s vital that regulatory reforms are delivered in tandem with meaningful action to boost housing supply,  creating a market that’s both accessible and sustainable in the long term.

Meaningful progress will depend on continued collaboration between regulators, lenders, government  and the wider industry. The FCA’s proposals represent a positive start, and an important opportunity to reflect on how we can collectively shape a mortgage market that better meets the needs of today’s and tomorrow’s borrowers.

This article was first published in Society Matters magazine.