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MMR jabs for the FSA

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.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. What is the point of trying to get the FSA to see the wood from the trees —- they live in an Ivory Tower.

  2. It does worry me that the FSA is pushing things ahead even though it knows its history.

  3. Perhaps the next step is for brokers and the trade associations to heavily lobby their local MPs and copy letters to David Cameron.
    We can whinge as much as we want on these forums, but we are kidding ourselves if we think its going to change anything. Only direct action will bring it to The PM’s notice – write to your local MP and Copy the PM !

  4. To Roy Boulger; would you not say that the FSA is the biggest threat to property prices as well as mortgages?

  5. Rob Downham is absolutely right when he says that ignoring the knowledge and experience of the thousands of us ‘at the coalface’ would demonstrate arrogance by the FSA.

    The people at the FSA may be well-meaning enough and they may even believe that they are helping the situation, but that doesn’t mean that they are right. Far from it. How many times have we seen huge, unforseen consequences of action taken by those in charge – not only at the FSA but any government department trying to bring about change without any real-world experience. The law of unintended consequences is all around us to see.

    The fact is that it is impossible to make an over-arching rule that will fit every circumstance and every individual’s needs. Yes, unquestionably, lenders should be making sure that the mortgage payments are affordable (albeit, it is difficult to plan for the situation where a borrower loses his job). But insisting on being able to afford a capital-and-interest mortgage when the client has an interest-only mortgage (with either investments or other assets with which to eventually repay the mortgage) is madness – what does that actually achieve ?

    These knee-jerk ‘solutions’ will simply destroy what is left of the mortgage industry and the economic situation surrounding house-builders will become even more dire than it is already. These proposals are likely to be the final nail in the coffin for the hopes of first-time buyers.

    And even when it becomes completely evident that the ‘solutions’ have killed off the housing market completely, those people at the FSA responsible for worsening the mess will still have jobs, still have platinum-plated pensions, still be receiving bonuses, and still be regulating IFAs out of existence.

  6. Those of us selling Mortgage Payment Protection Insurance have already felt the heavy hand of the FSA. ‘Surely they must listen to the whole industry criticising their proposals’ …..err no! Not a great track record there, so expect a determined effort to limit lending of mortgage funds and a whole generation consequently condemned to rent.

    However, there is always the Buy to Let mortgage marketmarket – nice margins.

  7. I’m not a mortgage broker (thank God), but if 51% of all mortgage applications between 2005 and 2009 had been turned down, the bubble in house prices might have gone into gentle reverse instead of inflating ever more crazily with the resultant crisis in house prices with which the country’s now trying to come to terms.

    The argument that people could have afforded their mortgage on a repayment basis but instead opted for interest-only just doesn’t hold water as far as I’m concerned. It doesn’t seem responsible to arrange a mortgage for someone with no repayment vehicle in place. I, for one, would never have contemplated buying my house on that basis and wouldn’t feel at all comfortable about advising anyone else to do so.

    If a borrower can afford capital & repayment, then that’s what he should have. If he can’t afford capital & repayment, then he should look to a smaller loan.

    Then again, we shouldn’t overlook the fact that the current crisis blew up on what is supposed to have been the FSA’s watch (commencing Monday 1st November 2004) but, as usual, the FSA was looking the other way ~ probably getting all the desks and the contracts of employment sorted out to everyone’s satisfaction before getting down to anything approaching actual regulation.

    So now, instead of a carefully considered and consulted-upon way forward, we see a knee-jerk response that’s upsetting, it seems, a lot of already hard-pressed people in the mortgage business. What about a mortgage that’s interest-only in year one, winding up to full repayment over the first five years? Wouldn’t that be a satisfactory compromise? Probably, but, as we know, the FSA doesn’t do compromise, does it?

    Doubtless the FSA will just shrug its shoulders and say “Serves you right ~ you brought all this on yourselves.” Oh yeah ~ and what were YOU doing at the time, FSA?

    And so it goes.

  8. There are far worse issues in the proposals than just banning interest only that will stop many people being able to get on the property ladder.

    We need to think about the reason for the proposals – other than just claiming it is knee jerk given the amount of time the FSA have spent ‘understanding’ the problem.

    The outcome is pre-determined. The issue is that they want property prices to be depressed and lending constrained. This, they feel, will result in the average man being able to afford a house. They totally misunderstand the way the market works.

    Far from actually making houses less attractive as an investment all that will happen is that property people will still outbid the man in the street in order to make money on the rents knowing that long term prices will not remain static. You can’t control the market.

    Whilst there is a shortage of supply – especially in the south east – the FSA may as well whistle in the wind as all the rules and regulations they try to impose will not give them the ability to control prices in the long term.

    If any firm were attempting to do such overt manipulation of the market they would be fined, banned, censured etc!

    Unfortunately the FSA is a law unto themselves and I think that politically the government is behind them on this.

  9. I am not sure there will be many mortgage brokers left in the industry to care. The industry has already been decimated, this will mop-up the remainder!

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