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Mortgage market will be more complex post-FSA, warns CML

The post-Financial Services Authority mortgage market is going to be more complex under the twin peaks of the Prudential Regulation Authority and the Financial Conduct Authority, says the Council of Mortgage Lenders.

Speaking at the CML’s annual conference today, Paul Smee, director-general of the CML, told delegates the regulatory framework for the mortgage market will become more complicated when the FSA is disbanded in 2012 and replaced with the PRA and FCA.

Smee (pictured) says there will also be a new influence in the form of the Financial Policy Committee, part of whose remit will be to prevent asset bubbles.

He says: “Its remit is still opaque, will it actually wield the instruments of deflation? Will those instruments be blunderbusses, scattering grape-shot; or finely-tuned lasers? We do not know but I cannot help but observe that every time the FPC talks of its mandate it uses the example of mortgages as the market where it could see itself making an impact. So we need to know the terms of engagement.”

He adds: “Regulators can exist in their own bubble with their own policy objectives. So regulators will cheerfully propose significantly tougher capital requirements for mortgage lending; and other regulators will equally cheerfully impose tougher selling requirements.

“Each, by their own lights, will be behaving entirely reasonably. Meanwhile, in another part of the forest, a third body – let us call it the government – is seeing a revival in the housing market as  a key part of its recovery strategy. A market which is part of the engine for growth may find its capacity to respond hampered if the weight of regulation is disproportionate.

“And the different parts of the regulatory forest need to be in contact with each other so that they can assess across the piece the effects of their cumulative demands.”

He also suggested that caution is needed in terms of seeing housing market success as measured only by ease of access to home-ownership.

Smee adds: “Our assumption of a stable market must embrace all forms of tenure.”

Smee says while there are a number of obstacles on the “road to Nirvana” – regulation and negative sentiment among them – better market conditions are attainable with effort, but to achieve them requires joined-up thinking on the part of regulators, government, and industry alike.

Smee also warned against the danger of self-reinforcing gloom, remarking that current sentiment echoed that of the 1970s, which was then followed by the high-growth economy of the 1980s – so he says “the wheel will turn”.

Smee says government does, however, have the capacity to act as a “real catalyst for good”. While it can be an obstacle if its policies confuse or divert the market and act as a brake on action while everyone waits for clarification or legislation, this need not be the case if it chooses to define its role differently.

He adds: “If government wishes to be a designer, driver and implementer of a solution, then I fear that its chances of success will diminish and fail. If it defines its role as being a catalyst, a prodder and pusher of others, then it can maximise its impact. I have seen this in several markets; I do not think that housing is different.”

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