The plan confirms that interest-only mortgages will not be prohibited, with an acknowledgement by the regulator of their benefits for some types of borrower.
The plan says:
"It is not our intention to ban interest-only loans, which undoubtedly, for some consumers, are an appropriate method of finance."
The report also confirms a welcome move away from mooted proposals for assessing affordability on a fixed 25-year term, and a generally more flexible approach by the regulator in response to representations.
"We are carefully considering feedback we have received on these consultations and will take full account of them. We recognise the need not to take a 'one size fits all' approach and the need to balance the advantages of simplicity against those of flexibility.
"For example, we acknowledge that our initial proposal to have a fixed 25-year term for assessing affordability, whilst easy to administer, may not be appropriate, given the range of different individual circumstances."
Confirmation of these changes, hinted at previously in speeches by key FSA figures, will be especially welcome if it heralds a more pragmatic approach in the responsible lending paper that the business plan says will be published this summer.
The business plan sets out how the regulator will address the risks to its statutory functions, as highlighted in the recently published prudential and retail conduct risk outlooks. It also provides a clear steer on some of the policy documents that will emerge in 2011.
It comes as no surprise that the FSA will be spending a lot of time and effort this year developing and preparing for the introduction of new regulatory structures, with a ‘shadow split’ beginning in April this year.
There is also a large amount of continuing work on the development of global, regional and national prudential standards in response to the financial crisis.
Of particular interest to lenders is the confirmation that the MMR will continue to be a central platform of the regulator’s conduct risk strategy in 2011 and 2012.
The FSA has also given details about documents it is planning to publish later this year. A further paper on responsible lending will be published in the summer. According to the business plan, this paper will be both a "policy statement and consultation paper."
That implies that the paper will include "near final" proposals that may not be open to further discussion, as well as policy that is being consulted upon again.
This paper will also have an "indicative cost-benefit and impact analysis" of the full package of proposed rules.
This year, the regulator will also consult on the prudential regime for non-bank lenders, the impact of the MMR’s broader proposals on niche markets (including lifetime mortgages and business lending) and the expansion of the FSA’s scope to include second charge lending.
This seems like a long and imposing list, but there are still some significant omissions. At this stage, it is still not clear if there is any intention to consult further on proposals for disclosure and distribution, or when transitional measures will be proposed and consulted upon.
What is clear is that the final MMR policy statement will not be published until early 2012, which gives the FSA more time than originally planned to consider an appropriate and proportionate set of proposals for the future of mortgage regulation. It also means that the MMR will enter its fourth year.
One crucial area of uncertainty, however, is how the FSA’s plans may be affected by the EU directive on mortgages, due to be published any day. The European document is likely to overlap significantly with both the MMR policy proposals and the timetable for the FSA’s work.
