It is interesting to hear the Financial Services Authority believes that the extended delay in implementing the rule changes resulting from the mortgage market review consultations will have minimal impact on levels of consumer risk.
The factor that does most to minimise the risk is apparently the continuing low levels of activity in the market, and whilst this will obviously mean that a known level of non-compliant transactions will impact fewer individuals than would be the case in a more active market, the effect on individuals who are ‘abused’ will be no different.
Sadly, there is still plenty of evidence that there are some in the market who do not always put the best interests of their clients first. They need to recognise that the reputation of the sector will only be rebuilt in the longer term if more is done to demonstrate that client needs are paramount.
Obviously the new rules will present challenges for some firms but, there is no excuse for delaying implementation of those elements of the new rules that are designed to enhance consumer confidence and protection. FSA figures show that whilst 98 per cent of broker sales are advised this falls to 50 per cent for lender sales. A small percentage of sales will continue to be conducted within the internet and postal channels that will not require advice. But there is a clear need for new processes if more lender sales are to be advised, together with the training necessary for those involved in this new activity.
The new rules also place much greater responsibility on lenders who have to be able to demonstrate that they have taken proper steps to test the on-going affordability of the transaction with proper checks on income and consideration of realistic mortgage costs.
The lender takes ultimate responsibility and will have to take great care if they choose to outsource any of these checking functions. Record-keeping will be of paramount importance to ensure that allegations of mis-selling cannot be brought at any time in the future.
No one can doubt the size of the challenge facing the FSA and the Financial Conduct Authority. Many of the pressures are caused by borrowers who in spite of historically low interest levels are unable to meet their financial obligations without resource to additional lending.
The second charge market continues to grow as does the appetite for short-term funding, often at very high rates of interest. Interest-only lending has now been made very difficult but that does not take away the problem from those who bought without any consideration as to how the capital sum is to be repaid. Inevitably many individuals will reach retirement age whilst they are still significant borrowers.
We now know that the FCA is planning a new methodology of supervision to help them with meeting these new challenges. Huge quantities of market data will be analysed to assist in identifying stresses in the market and resources will be deployed in a flexible manner to enable the regulator to respond quickly to risk issues as they arise. It is to be hoped that any such issues can be identified before they impact consumers.
Richard Fox is chief executive of the Society of Mortgage Professionals