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FSA proposals could cost lenders £20m a year

The FSA’s responsible lending proposals requiring income verification and affordability checks for all mortgages could mean lenders are hit with annual costs of up to £20m.

A cost benefit analysis of the FSA’s proposals was included as part of the consultation paper published by the regulator today.

The FSA commissioned a company called Oxera to estimate the compliance cost to lenders of implementing the FSA’s proposals on income verification and affordability.

Oxera estimates that the average total additional costs to lenders would be between £3 and £12 per mortgage sale.

It works this out on the basis that lenders would pay an extra £4.50 per mortgage needing proof of income, an extra £18 per mortgage where income verification is more complex, and an extra £17 per mortgage where affordability would be assessed.

The average cost takes into account that only a certain proportion of mortgages will be affected by the proposed rules, as the majority of mortgage applications are already submitted with proof of income.

The paper says: “Oxera estimated the total cost to industry of implementing the affordability requirements to be in the region of £3m to £15m. The total ongoing costs for the industry to maintain compliance with these requirements is estimated to be in the region of £5.8m to £20.3m per annum.”

Meanwhile the FSA estimates its own one-off costs for implementing the plans to be around £275,000.

The cost estimates affect lenders rather than advisers as the regulator has ruled that ultimate responsibility for affordability lies with the lender.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. The next thing that will happen will be that lenders want Packagers back………
    Stranger things have happened!

  2. Julian Stevens 13th July 2010 at 4:39 pm

    Call me a simpleton, but I thought that as part of their normal underwriting processes since time immemorial, lenders seek proof of stated earnings for employed persons in the form of their last three payslips, their last P60 or a letter from the employer. For the self employed, the requirement is sight of the applicant’s last three years’ accounts.

    What’s changed over the past 12 months?

    That aside, how can the implementation of new underwriting guidelines on the part of the FSA possibly run to £275,000? They hold a meeting or two, agree the new framework, notify the mortgage broking and lending industry and, surely, that’s it ~ isn’t it?

    How can something so simple be so expensive? Then again, when did the FSA ever do anything that wasn’t monumentally expensive?

  3. Julian,
    Don’t be silly! £275,000 is small change to the FSA, they probably have more than that in the tea tin.

  4. Oxera seem to have been commissioned rather frequently on research and report work, not least in the preparation of our beloved RDR.

    Does anyone know which particular old boy link opened up OUR moneybox and how much Oxera has filched?

    I will do my own digging but many hands……..!

  5. Sorry, you forgot the part where they have to hire a consultant to tell them what a mortgage is and how they work. That will cost at least £200,000!

  6. Compliance Man 13th July 2010 at 6:49 pm

    There are a number of points to consider – if you read the CP you will see the level and details that the FSA are lookingfor in the assessment that means many currently assessed mortgages will not pass the test.

    The cost, therefore, will be significantly higher than anticipated as it ignores the amount of time it will take for staff to actualy get hold of all the required information in the first place let alone reviewing and understanding it – eg combing through bank statements to check the declared expenditure items match up!

    The biggest fallacy is in the headline of this article. The lender may incur all the extra costs but they will be passing it on to the consumer in higher charges for applications or higher interest rates.

    The outcome, therefore, is that the consumer will have to pay more for the FSA’s ‘nursemaid’ protection.

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