Lobbying from the Association of Mortgage Intermediaries and others helped persuade the FSA in its mortgage market review not to adopt some of the uninformed suggestions from certain politicians and so the MMR does not propose loan to value or loan to income caps.
Some other proposals are very sensible, including the new names for different types of advised and non-advised sales, and the FSA’s belated recognition that individuals giving advice or information to borrowers should be registered at the FSA as approved persons.
However, I suspect there is a Catch-22 situation in the proposals for non-advised sales. On the face of it, the new proposal to use the term “non-advised sale” should be clear to borrowers but then so should the current term of “information-only”. The more questions that a customer is asked before a “non-advised sale” takes place the more likely it is that they will think they have had advice, whatever they are told regarding the type of sale.
With the MMR proposing that more questions should be asked to establish affordability, including on non-advised sales, it may be necessary to go further to make sure customers understand when they have not had advice. The MMR’s emphasis on oral information is sensible but will be difficult to monitor. Maybe on non-advised sales customers should sign a short one-paragraph statement confirming they understand they have not advice and the implications in respect of access to the ombudsman.
On the negative side, two proposals in the MMR which need to be challenged are the banning of self-cert and fast track and restrictions on equity withdrawal. The former appears to be based largely on a failure by the FSA to fully understand the difference between self-cert and fast-track. The justification for the latter is that “by 2007, home-purchase equity withdrawal replaced home purchase as the main purpose of mortgage borrowing” and that “39 per cent of all mortgages sold in 2007 were advanced for this purpose.”
I could not work out how the FSA got this 39 per cent figure and wondered if “home purchase equity withdrawal” was something different to “equity withdrawal.” I asked the Council of Mortgage Lenders if it understood this figure but it was also puzzled and consequently it asked the FSA for clarification. The FSA response was that including the words “home purchase” was a “drafting error” and that 39 per cent was based on Bank of England figures of £42bn for housing equity withdrawal and £108bn for net lending in 2007.
Thus. the justification for restricting equity withdrawal is based on the out of date figures of a single year. I cannot imagine why the FSA did not use the latest figures, that is, 2008. Surely, it cannot be because the latest figures do not support its hypothesis.
In 2008, housing equity withdrawal was negative at -£9.1bn, with net lending at £40bn, indicating that the market self-corrects, with no need for regulatory intervention.
Or maybe it simply could not work out what percentage of sales a negative figure was.
Ray Boulger is senior technical manager at John Charcol