The Council of Mortgage Lenders' decision to poll members over their mortgage code plans arguably shows the extent to which it fears for its post-N3 future.
With senior mortgage figures predicting a sharp decline in the number of lenders prepared to be a slave to two masters after next August, the trade body has every reason to be concerned for itself and the code it sponsors.
The CML's constitution states that all members must subscribe to the mortgage code and can only accept business from brokers who are also signatories.
If, as Halifax and Scottish Amicable predict, statutory regulation sparks a mass exodus from the code, the CML's constitution could leave it high and dry, with only a few remaining members.
Mortgageforce managing director Rob Clifford says the CML may have shot itself in the foot by asking members to state their intentions. “The danger with asking a commercial organisation whether it wants to be regulated by a single body is that the inevitable response is going to be yes. It could well do the whole ethos of the mortgage code considerable harm.”
Speak to lenders and they either hedge their bets over the issue or pledge their commitment to the code. But this does not tell the whole story. The CML has already confirmed that it is brushing aside a recommendation in the recently published DeAnne Julius report that the mortgage code should undergo a interim review in November.
It has offered no explanation but Scottish Amicable national mortgage manager John Malone, who heads a mortgage club with over 30 lenders on its panel, suggests: “There is absolutely no point in trying to rewrite the mortgage code if there is no support for it.”
He believes all 140 lenders will pull out of the code come N3 and interprets the CML's move as a clear sign that it has been getting similar feedback.
Assuming this does turn out to be the case, some industry figures believe the CML could pay the ultimate price for the imposition of a dual regime on lenders reluctant to pay twice for the privilege of being regulated.
Savills Private Finance director Mark Harris says: “Although I think the mortgage code has worked well and helped lay the groundwork for statutory regulation, the CML will eventually cease to exist if lenders pull out. But if this does happen, we will simply be back to square one.”
Harris points out that, due to the Treasury's decision not to regulate mortgage advice, lenders which pull out of the code may be answerable to no one in some areas. Although staff in branches do not technically give advice, there are concerns that a grey area exists where some products are recommended over others.
London & Country mortgage specialist David Hollingworth says: “The question is whether borrowers think they are getting advice or not. The code makes very clear that providers must state whether they are giving advice or information. But, with no obligation on lenders to follow the practices of the code, will this continue to be the case?” Another organisation set to feel the full impact of a much weakened voluntary regime is the Mortgage Code Compliance Board, which has been mooted as the most likely body to assume lenders' responsibility to police brokers.
Unsurprisingly, the MCCB says it is working on the basis that the mortgage code will continue as regulatory gaps in the FSA's proposals – cited as a major concern in the DeAnne Julius report – will need to be filled.
But questioned as to whether the CML would survive under its existing constitution if lenders were to withdraw from the code, the MCCB simply says the trade body “might want to rethink its rules”.
The CML is keen to play down any speculation over its future and says any conjecture is pointless until the shape and scope of the FSA's regulations are revealed. But regardless of the nature of the new rules, the fact remains that there will be a dual regime in place next year and it is that – and not the regulator's remit – which concerns lenders the most.