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‘Regulation, regulation, regulation’: How the mortgage market survived 2016

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“Regulation, regulation, regulation” describes the mortgage market in 2016, industry leaders say, as Brexit and technological advancements also drove shifts in the landscape.

Following the EU referendum vote on 23 June the market braced itself for the worst. But the immediate impact of Brexit was muted. Mortgage approvals dipped slightly immediately after the vote, but there is evidence that rises in UK house prices are cooling, and there was no obvious knee-jerk panic.

However, the long-term picture is far from clear. Some, such as IHS Global Insight chief UK and European economist Howard Archer, remain bearish on the market’s prospects.

He says: “Housing market activity and prices now look to be at very serious risk of an extended, marked downturn following the UK’s vote to leave the EU.”

Others take a more measured view, noting the full effects have yet to play out and uncertainty is still the main issue for the post-Brexit mortgage market.

Association of Mortgage Inter-mediaries chief executive Robert Sinclair says: “On 23 June, the clear plan that the Cameron government had put forward on housing and mortgages went up in the air.”

Getting ready for regulation

However, it was mortgage regulation changes that came to define the market in 2016.

March kicked off the cycle as the mortgage credit directive came into effect, regulating the second charge market for the first time. March also saw the Prudential Regulation Authority announce it would toughen buy-to-let underwriting standards, which were then confirmed in September.

The buy-to-let market took another kicking in April, when the Government began phasing in stamp duty rises for second properties.

In a further blow in August the FCA wrote to smaller lenders saying it was considering tightening its control on buy-to-let lending.

The regulator is concerned that buy-to-let lenders solely governed by the FCA could present a risk to the wider financial system through substandard underwriting.

The FCA believes this could harm consumers and the rest of the economy.

But the year was almost at an end when the FCA dropped another regulatory bombshell: the hotly anticipated details of its review into the mortgage market. In mid-December the regulator said it wanted to know if consumers have an “empowered” choice between products and services and can understand if these are good value for money.

The review was fiercely opposed, with the Building Societies Association, the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association and Ami all calling on the FCA not to intervene in the market, arguing it is already competitive.

But Ami and Imla have told the regulator to pay closer attention to execution-only sales and trapped borrowers.

The regulator has also announced it would look at how previous Mortgage Market Review regulation might be harming competition.

It is clear the FCA is in no danger of running out of jobs to do when it comes to mortgages.

Technological change also influenced the mortgage news agenda in 2016, however.

Legal & General Mortgage Club director Jeremy Duncombe says: “We have seen the emergence of robo-advice, with several online propositions entering the market. We expect to see the ‘rise of the robo’ continue in 2017 and we encourage brokers to keep diversifying and evolving where required.”

EXPERT VIEW

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Pat Bunton
Director of London & Country Mortgages and chairman of the Association of Mortgage Intermediaries

For me it’s regulation, regulation, regulation. We have had the Mortgage Credit Directive, we have had the whole issue around transitional provisions and product transfer/mortgage prisoners, which are all interlinked. As we move into next year we are waiting on what the findings will be from the Mortgage Market competition review.

Everyone that I speak to, whether lenders or brokers, is of the view  this is a market that works really really well for consumers. There is a huge amount of competition, and you can see that from the number of lenders and the number of products available in the marketplace.

The only area where  there is an issue is around product transfers and mortgage prisoners. That is an area where those customers have lost the ability to vote with their feet. That is ultimately a regulatory failing, so it will be interesting to see how the FCA deals with it.

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  1. The big winners in the next few years in the mortgage market will be the “Millennials” as house prices start to fall rapidly due to BTL investors offloading their stock. This younger generation will have a lot to thank David Cameron and George Osborne for, as the BTL regulations start to bite and wealth is transferred back from the “baby boomers” to the “Millennials”.

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