Government policy on regulation of the mortgage market can be summed up as “Do as I say, not as I do”.
This was soon apparent after direct Government involvement in the mortgage market with Help to Buy but became even more obvious with the launch of Help to Buy 2, the mortgage guarantee scheme.
Help to Buy 2 has created consumer confusion for one simple reason: to maximise the political impact of a budget announcement, the Chancellor gave two completely different mortgage incentives the same name. Many people who over the previous six months had become familiar with Help to Buy 1, the shared equity scheme, naturally thought Help to Buy 2 worked on a similar basis.
Giving two totally different schemes the same name drives a coach and horses through the FCA’s rule that all mortgage promotional material must be “clear, fair and not misleading”. However, it doesn’t break FCA rules because the Government has granted itself a regulatory opt-out. It has given the Homes and Communities Agency, the department that actually provides the shared equity second-charge mortgages offered under Help to Buy 1, complete exemption from regulation.
Had this second-charge equity share mortgage been offered by a private sector provider, it would have been regulated under the Consumer Credit Act until the end of March 2014 and by the FCA from 1 April. However, because the Government has exempted itself from the regulatory process, its equity share second-charge mortgage will remain unregulated even when the FCA takes over regulation of this type of mortgage.
Therefore, despite the FCA requiring that from 26 April almost all mortgages can only be sold after regulated advice has been provided, HomeBuy agents, which the Government has designated as the sole source of Help to Buy shared equity mortgages, will be completely unregulated by the FCA. So if a complaint is not satisfactorily resolved the complainant will presumably not have recourse to the Financial Ombudsman Service.
The Government’s cavalier approach to the regulatory process contrasts vividly with the line taken by the most prominent private sector provider of shared equity mortgages, Castle Trust, which goes beyond both current and the forthcoming FCA regulatory requirements. It does this by insisting individual advisers pass an online accreditation test to establish that they properly understand its product.
Nevertheless the two Help to Buy schemes, in conjunction with Funding for Lending, have clearly revitalised the mortgage market, with gross lending in 2013 likely to be 20 per cent up year on year. Both schemes were scheduled to last three years but the funds allocated to Help to Buy 1 are unlikely to last more than two. Therefore the exit strategy for this scheme is an issue the Government needs to address quickly to maintain developers’ confidence in high LTV mortgage availability.
Ray Boulger is senior technical manager at John Charcol