The recent Mortgage Business Expo in Manchester provided an opportunity for lenders, intermediaries, trade bodies and regulators to set out their respective views on the latest version of the mortgage market review.
Given the lengthy gestation period of this document, it is surprising so many significant issues are still open to debate and it is increasingly apparent there is little likelihood of the various parties reaching a common position. As a result, the time has come for the regulator to define future requirements, allowing the market to make appropriate preparations.
The key element that must be resolved hinges on the definition of advice or, more important, whether there will be any scope within the rules for customers to interact with their lenders without stepping over the line where advice is deemed to have been given. What seems a simple question of definitions is more complicated in reality.
Core to the problem is the difficulty of writing detailed rules to cover a process that is in a state of constant development and ever more affected by new technology. It is inevitable that the rules that cope with today’s processes will quickly be challenged as unanticipated mechanisms for delivery arrive.
If the regulator is to persist with its objective of micro-management, it will have to be fleet of foot to avoid allegations that it is hindering product development. It is hard to see how an ability to respond quickly can sit happily with a requirement to put all rule changes through a consultation exercise, despite there being good reasons for the process.
At the same conference, the FSA sought to distance itself from holding any responsibility for the tighter lending policies being adopted by lenders. It argues that at a time when funding is thinner on the ground, it makes commercial sense for lenders to choose to lend on higher-quality mortgages.
This may be true at one level but the reasons for restricted funding need to be considered along with the impact of the capital requirement rules.
There is a growing view that lenders must be able to price products more directly against risk. Allowing such a freedom could open the market to many borrowers who are currently being excluded and it would enable lenders to offer investors more attractive rates. The key factor for consideration is whether we believe that firms will manage the risk in a responsible manner.
Similar concerns are behind the issue with interest-only mortgages. The FSA has said it does not wish to prohibit interest-only and is willing to rely on lenders to consider clients on a case-by-case basis.
The response to this has been many lenders withdrawing from the market, suggesting they either have little faith in the public statements for the FSA or little faith in their own ability to minimise risk.
It is concerning that all the talk about the future of the market assumes we will continue to enjoy low interest rates into the future.
If only the future was so predictable. It would seem inevitable that the effects of quantitative easing and sterling devaluation will unravel in due course, causing significant upward pressure and the attendant difficulties for many borrowers.
Richard Fox is chief executive of the Society of Mortgage Professionals