In its mortgage market review discussion paper, published on Monday, the FSA proposes that lenders should be ultimately responsible for affordability checks, as tipped by Money Marketing. It says mortgage brokers should be individually registered to limit the ability of individuals to hide from regulatory penalties and help the FSA to track individuals throughout the industry.
The paper argues against the retail distribution review being applied to the mortgage market, describing mortgage advice as simpler than the market for retail investments. It says any problems faced by the mortgage sector will not be solved by RDR plans. The FSA plans do not impose level procuration fees for mortgage brokers although it is considering asking lenders to supply it with information on income earned by brokers on mortgage deals.
It puts forward a blanket ban on mortgages that are approved without proof of income and is considering whether buy-to-let regulation should come under its remit, as well as second-charge mortgages.
The suggested reforms would ban charges on arrears where a borrower is already making repayments and will stop lenders from offering products with a “toxic mix” of factors that put the borrower at risk, such as lending at high loan to value to credit-impaired borrowers with unstable income.
Managing director of supervision Jon Pain says: “The FSA’s analysis of the mortgage market shows a rapid explosion in mortgage products.
There was an emergence of high-risk lending strategies which typically focused on higher-risk borrowers, relaxed credit standards and a mutual assumption by too many borrowers and lenders that the good times could not end.”
First Action Finance head of communication Jonathan Cornell says: “I understand the concerns over self-cert but I think it is a very valid product if it is underwritten and advised sensibly. There is a danger that if you scrap self-cert and fast-track, you will have a vast proportion of the labour force denied mortgages.”
London & Country head of communications David Hollingworth says: “The general feeling towards financial services, and banks in particular, is far from charitable right now and there was a temptation for paper to be a kneejerk reaction but I think it is relatively measured.”
FSA mortgage market review proposals
- Lenders to be ultimately responsible for affordability
- Brokers to be individually registered as approved persons Self-certification banned
- No ‘toxic’ mixtures of high-LTV loans for credit-impaired borrowers with unstable income
- ‘Whole of market’ brokers to be known as ‘independent’
- No RDR read-across to the mortgage market for adviser-charging or QCF level four