Twelve months on from M-Day, the media are full of predictions as to whether the mortgage market is heading towards a stable slowdown or a dramatic crash.Although the industry is used to prophecies of doom, it is probably not unreasonable for a market slowdown to be equated with compulsory mortgage regulation. Very few people disagree that the mortgage market as a whole started to grind down from October 31, 2004. Chadborn Baker & Kearle mortgage expert Peter Wright says: “With the exception of a slowing housing market, the market slowdown has predominantly been due to the onset of mortgage regul- ation. As a traditional IFA firm, the new regulation has not affected the way that we operate but, for many mortgage brokers, increased regulation and, hence, processing times have had a considerable impact on the way they operate.” Wright adds that, in many cases, the new operating systems created by lenders have been unable to cope, the transition has not been seam- less and, consequently, advisers have found themselves unable to produce the same levels of mortgage business. Recent statistics do not make happy reading. Gross mortgage lending in October 2004 fell to 10,300m from 11,200m the previous month. It slipped to 9,100m in November, rose slightly to 9,900m in December, then fell to a low point of 6,900m in January, according to the Council of Mortgage Lenders. How- ever, August 2005 saw gross lending improve to 12,500m. The Nationwide house price index for September 2005 indicates that UK house prices fell by 0.2 per cent. The report also suggests that house price growth stalled in the three months to the end of September, with no increase seen in prices. These statistics come along- side a report from Marlborough Stirling estimating that regulation is costing the mortgage industry at least 123m a year. The average cost of processing mortgage applications has increased by 69 per cent to 146.49 a case in 2005 from 89.67 in 2004. Lenders are also processing fewer applications per consultant this year, with productivity dropping from around 1.7 completions a day in 2004 to 1.18 this year. Marlborough Stirling managing director (mortgage business) David Edwards says: “The excellent improve-ments in mortgage processing by most lenders in 2004 appear to have been reversed in 2005. Regulation was probably a major factor in this reversal. Many lenders have found it difficult to reconcile the needs of M-Day with maintaining low-cost, high-quality services. “Most lenders now face the challenge of addressing their internal processes and back-office system inefficiencies while competing in a stagnant mortgage market with dramatic pressure on margin.” Stroud & Swindon chief executive John Parker suggested in November 2004 that the one-off cost of mortgage regulation was 500m. The FSA put the cost at 136m, with 83m falling directly on lenders, while the CML adjusted its prediction upwards to 250m from 180m. The FSA would not comment on other figures but said the additional cost would be about 3.90 a month for the first year of a mortgage. Abbey director (mortgage & protection) Ricky Okey says: “One year on and we can see that the impact of regul-ation has been very signifi-cant. While the overall theory of greater transparency is to be welcomed, in practice, the customer experience has not always been enhanced.” Since M-Day, the mortgage market has flattened, lenders’ processing has slowed, the cost of implementing regulation has exceeded most estimates and the Chancellor’s economic outlook for growth has been criticised. The industry has been told in earnest tones that regulation is not wholly to blame for the slowdown and any economist worth their salt would also blame rising unemployment, an increase in arrears, hurri-canes and rising oil prices. But there are still more issues which have not yet been factored into the equation and perhaps the rough ride is not yet over. The market has yet to see the mass consolidation among intermediary firms, packagers firms and small lenders that was predicted at M-Day. Cartel director of compliance John Rattigan says: “Although there has been some market consolidation, we have not seen it happen at the speed predicted. The next 18 to 24 months will see this phenomenon gather pace. This consolidation could possibly spell extinction for some networks as many appointed representatives seek to become directly authorised.” The market is also awaiting the implementation of Basel Two. Rattigan says: “With regard to Basel Two, the potential capital-adequacy requirements could place higher, tighter restrictions on lenders and insurers.” Home information packs are also looming on the horizon, if a little tentatively. Pink Home Loans managing director Tony Jones says he remembers April 1988 when Chancellor Nigel Lawson announced the end of double mortgage tax relief. Between the announcement and implementation, mortgage activity rocketed and then plummeted. Although Jones does not believe the impact of Hips will be as significant, he says there could be a flurry of activity on implementation and then a slight slowdown as sellers try to sell their houses without having to pay for a Hip, which at this stage is estimated to cost between 750 and 1,000. Association of Mortgage Intermediaries policy officer Ben Stafford says: “Firms should now understand that M-Day was not a one-off event but an introduction to a new environment. Balancing increasing compliance costs with commercial pressures and strategic challenges, such as those posed by Hips, is not easy. With the right amount of awareness and planning, however, intermediaries will weather these storms and prosper.” It is not all doom and gloom. Most people will agree that the last 12 months have not been easy and the flattening market has made lending difficult put pressure on systems and required brokers to reassess their productivity and activities. But the consensus is that regulation has resulted in a fairer, more transparent and competitive market.