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Ray Boulger: Why the MMR still needs more work

The second draft of the mortgage market review, while still subject to consultation (until March 30), is already having a serious nega-tive impact despite the FSA confirming that, even when finalised, it will not be implemented before mid-2013.

As a result, the FSA will have to revise upwards its estimate of borrowers shut out of the market as a direct result of the MMR. It should also tell us if it considers this higher than expected collateral damage is acceptable.

Although the revised draft MMR reflects many comments from the earlier consultation, it is already clear that further revisions are needed, particularly with reference to interest-only and the transitional arrangements.

“One-size-fits-all” has been such a fan- tastic success for the euro that the EU, and hence its UK regulatory branch the FSA, has decided that one-size-fits-all must apply to the mortgage market.

Consequently, 18 months before the earliest implementation date for the MMR and months before the final rules, lenders are reacting to the latest draft because they are understandably not prepared to accept the new regulatory risk of the potential consequences of borrowers’ repayment strategies not repaying an interest-only mortgage in full.

The recent Draconian interest-only criteria changes demonstrate it is imperative the FSA acts quickly to stop the rot by “clarifying” some of its requirements. If it waits until the end of the consultation period, let alone publication of the final rules, the damage to this minority but important segment of the market will be immense.

There is a limit to how much borrowers should be molly-coddled. The FSA should make it crystal clear that those who choose the interest-only route need to accept responsibility for their own decisions and not leave lenders indefinitely on the hook.

Since taking advice will be mandatory for nearly all borrowers, this should provide adequate comfort to the FSA as well as borrowers as the normal regulatory obligations will apply to advisers.

Ray Boulger is senior technical manager at John Charcol

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