The Council of Mortgage Lenders says the FSA’s mortgage market review would have meant 51 per cent of homeloan applications would have been rejected between 2005 and 2009 if the rules had been in force.
In July, the regulator published the latest MMR consultation paper and invited feedback on the proposed changes to interest-only mortgages by September 30 and to all other questions by November 16.
The four major trade bodies – the CML, the Association of Mortgage Intermediaries, the Intermediary Mortgage Lenders Association and the Building Societies Association – all issued responses criticising the proposals.
The CML said that around 3.8 million “good” loans, or 51 per cent of all mortgage applications, would have been rejected if the FSA’s MMR proposals had been in place between the second quarter of 2005 and the first quarter of 2009.
It assessed a number of the plans, including requirements for lenders to assess affordability and for applicants to be able to repay the loan on a capital-plus-interest basis, even for an interest-only mortgage.
The CML also applied proposals to add a buffer to the affordability test for applicants with an impaired credit history and assumed a maximum term of 25 years for the loan, even if the actual term is to be longer.
The CML’s figures brought strong comments from the broker community. John Charcol senior technical manager Ray Boulger says the FSA is “the biggest threat to the mortgage market” while Emba group sales and marketing director Mike Fitzgerald warned that the measures, in their current form, would lead to “a lost generation” of clients.
Simplicity Financial Services principal Rob Downham says the FSA must listen to listen to criticism from the industry when it finalises its rules.
He says: “If all the industry’s trade bodies are saying they need to take another look at this, it would be pretty arrogant for a regulator to then ignore them when these organisations are probably more aware of what life is like at the coalface than the FSA.
“All innovation seems to have left the marketplace and I do not think the FSA is trying to help that. I think it is trying to increase regulation, which will make it worse, not better.”
MoneyQuest managing director Simon Jackson believes the FSA should take another look at the MMR.
He says: “I do not think it is just brokers having a bad day and complaining about the proposals. People have had a long time to sit down and think about it, they have looked at what the industry has done to regulate itself since the credit crunch and more regulation on top will make things worse. Being a broker is already really hard work.
“It would be correct for the FSA to take another look at some of the requirements they are thinking of implementing, to see if they are right or wrong.”
But First Action Finance head of communications Jonathan Cornell warns the industry not to expect too many changes to the plans .
“I think the FSA may go away and water down some aspects but I do not necessarily think we will see all the contentious parts removed.”