Some of the reponses to today's FSA paper from across the industry are below - beginning with Andrea Rozario, Director General of The Equity Release Council, who praised the FSA for enhancing the clarity of guidelines:
“The MMR announcement is excellent news for the industry as it looks to make it far more user-friendly for consumers and help people in mortgage limbo. We are particularly pleased that it looks to ensure borrowers are not discriminated against due to age. An increasing number of people are choosing to work into their late sixties or beyond and this change means they should have some of the same opportunities as younger borrowers.
“With regards to changes to the equity release market, we are delighted the FSA has listened to the industry and enhanced the clear provider guidelines. With a rapidly aging population, this market is likely to continue to grow in the future and the MMR will help it to do so.”
Despite a similarly positive reponse from many other industry professionals, there remains disappointment that, as one question put to Martin Wheatley at the evidence-giving in March read, "How has it taken you so long to take action on this matter?".
Which? chief executive Peter Vicary-Smith said:
“Proposals for banks to conduct an affordability test will hopefully prevent a return to the irresponsible lending of the past. But it's disgraceful that banks encouraged so many people to borrow more than they could afford without proper checks. The banks have a responsibility to help these people who are now struggling through no fault of their own.
“The housing market is failing not just one but two generations of consumers, with many mortgage prisoners trapped with their current lender and young people excluded from the housing market altogether.
"Transitional rules to protect mortgage prisoners are a good start but the regulator needs to go much further to make sure banks are fair to hard pressed borrowers trapped on Standard Variable Rates and exposed to rising mortgage payments. More than 1.6 million people have been hit by increasing SVRs despite the Bank of England base rate remaining unchanged for more than three years. The banks must pass on lower borrowing costs from the Government's Funding for Lending Scheme."
James Moss, managing director of Curzon Investment Property, London’s leading independent agent, appears to agree, commenting:
"It’s like shutting the door after the horse has bolted. The credit crisis was caused by banks literally throwing mortgage cash at consumers. The banks took a bath and this has been largely checked through. But once again it’s the consumer who will be the fall-guy.
“The pendulum is now swinging too much the other way: banks need to lend responsibility and the government is desperate to kick-start the depressed UK housing market. These new measures are very draconian and will simply repress the very housing recovery the chancellor keeps saying he wants to spur on."
Although positive about the 'good sense' of the FSA's changs, Peter Williams, IMLA’s Executive Director notes that the actual impact of the review may be less than expected:
“The FSA's new rules include a lot of good sense though much of it is already standard practice among lenders. There is a lot to absorb in this new document (it is over 300 pages long!) and IMLA members will want to take time to reflect upon it. It is not a consultation as some had hoped - these are the rules and we note the FSA will conduct a formal review of their impact within the next 5 years.
“We welcome the publication of the new rules because it largely brings an end to the process that has been underway since 2009. As intermediary lenders we recognise the importance of advice and in the new regime most borrowers will be required to take advice, this will no doubt improve outcomes for the majority of consumers.
“The FSA has had to deal with the problem of existing borrowers trapped in mortgages taken out under the old regime still having access to the market under the new rules and it has sought to make its 'transitional' rules more flexible in this respect. While IMLA recognises the efforts the regulator has gone to in order to help such customers, there are concerns that lenders may not be able to bring solutions forward unless there is the prospect of being able to price adequately for the risk.
“It is also clear that higher LTV loans to first time buyers have not been banned and nor have interest only loans, with the critical focus rightly remaining on affordability. Both are sensible components of a modern and diverse mortgage market.
“The FSA has made adjustments in the light of industry feedback and our initial view is that its new rules will not damage the market but that they will also do little to reinvigorate a housing market that remains at a low ebb (beyond the clarity it offers). Given the UK needs to see sustained economic growth and within that a growing and competitive mortgage market it is hard to see these rules bringing new vitality to the market.”
Bill Warren, Managing Director of Warren Compliance, commented:
“Having viewed the MMR feedback and final rules document, it seems that the Financial Services Authority has adopted a common-sense approach to its new legislation. Importantly, the new rules represent good news for the intermediary in the main. The ruling that face-to-face and telephone sales must be advised removes consumer confusion and strengthens the significance of what mortgage brokers do. The requirement that all sellers must have relevant mortgage qualification also levels the playing field and comes eight years after this became mandatory for brokers after M-Day. The consumer can only gain from this enhancement of professionalism.
“In terms of interest-only mortgages I think common sense has now prevailed and there is now no reason for lenders to treat it as high-risk. The recent overreactions of lenders in withdrawing from this market have been anti-consumer and out of touch with what borrowers want and need. Placing more responsibility on lenders to account for affordability is another sage move, although intermediaries must be clear about each lender’s approach and the third party distribution channel as a whole must ensure lenders don’t use this as an excuse to ease them out. Income and expenditure recording within the sales process will also be critical – as will individual lenders’ interpretations – and the FSA has sensibly positioned the responsibility with the lender to ensure that both employed and self-employed customers are treated fairly.
“Finally, the implementation timescale of the Mortgage Market Review has just been too long and the impetus for improvement has been diminished as a result of this. I understand the practical IT and qualification issues that have caused the date to be pushed back to 2014, but it has still dragged on beyond an acceptable timeframe.”
Joanna Elson, Chief Executive of the Money Advice Trust said:
“These new rules would seem to ensure struggling mortgage borrowers aren’t forced further into debt by excessive charges for falling into arrears. Banks and building societies have shown greater forbearance with struggling mortgage borrowers over recent years and as a result we have seen the number of repossessions fall. By strengthening the rules around arrears management practices the FSA is helping to make sure this trend continues.
“The potential fallout on mortgage borrowers of a rise in interest rates should not be under estimated. Whilst predictions that the Bank of England would raise the Base Rate in 2011 or 2012 have so far proven incorrect, there remains only one way for interest rates to go. We believe many households have been reliant on low mortgage payments to get through what have otherwise been challenging financial times. It is therefore welcome that lenders will have to assess affordability on both a capital and interest basis when lending new mortgages, unless there is a credible and clearly understood alternative source of capital repayment. Lenders will also have to take into account an interest rate stress test to ensure borrowers could meet increased payments in line with expected interest rate rises. These measures should offer some protection for the mortgage market as a whole and for individual borrowers.”
Stephen Smith, director of housing and public affairs at Legal & General, comments:
“We are pleased to see that the need for advice on mortgages is both front and centre of the FSA’s new mortgage market regime and we are confident that the mortgage intermediary sector will respond to this opportunity.
The implementation date of mid April 2014 seems realistic and will give all sides of the industry ample time to make the necessary changes to complete systems and working practices.
Although the final output from the three year process is much improved and more pragmatic than the original proposals, it is disappointing to see that one key initiative – the individual registration of mortgage advisers has not been included.”
Hugh Wade-Jones, director of independent mortgage broker, Enness Private Clients, has also commented with regards to the implications for high net worth clients:
"The toughening of the criteria surrounding interest-only and the general tightening of the affordability rules came as no surprise. Most lenders, as many borrowers will have experienced first hand, have been doing this off their own backs already.
"These moves are a positive for the industry, as interest-only lending with no credible repayment plan did get out of hand. The number of people approaching retirement with interest-only mortgages outstanding may seem trivial to many but poses a serious threat to the economic stability of many banks.
"The area of the MMR surrounding entrepreneurs is an extremely bold move in an otherwise conservative paper. Anything that encourages entrepreneurs to generate wealth has to be welcomed. As ever, the devil will be in the detail as the accessibility of these type of loans will be dependent on where banks set their loan-to-value limits and rates.
"If LTVs and rates are unattractive, alternative finance routes such as bridging and private equity already exist and are quicker and easier. I’m delighted with the exemption for high net worth borrowers. A one-size-fits-all approach is like trying to bang a square peg into a round hole where high net worth clients are concerned due to the complexity of their income. And in cases where income is irregular but wealth vast a standard income affordability check is inadequate.
"I’m pleased the FSA has reduced its income requirement from £1m pa to £300K pa. High net worth clients with vast wealth already, especially business owners, are unlikely to draw and pay tax on more than they need from their businesses so in my experience people declaring £1m+pa even among the über-rich is rare.
"I’m still interested to see whether the net asset value of £3m+ to qualify as a high net worth includes a person's primary residence. When the proposal was put together earlier in the year I proposed it shouldn't be as it would drag in people who happened to have bought a house 20 years ago in a fashionable area."
