"While it is hugely important that market stability is supported, it is questionable whether such a tight regulatory approach is compatible with policymakers’ goal of increasing popular homeownership."
IMLA research shows that the biggest frustration that borrowers experience in the mortgage marketplace is having their borrowing limited by affordability constraints.
The Association says that polices like the MMR have had the explicit goal of preventing borrowers from over-stretching themselves, while policies aimed at lenders like Basel 3 have raised capital requirements for financial institutions.
IMLA says these changes have subsequently resulted in the reduced availability of non-prime mortgage products and high-LTV loans compared to a decade ago, which has "had a clear impact on some consumers’ ability to access mortgage finance in recent years".
Its research also found brokers have been having difficulty in sourcing mortgages for some groups of prospective borrowers – many of whom require a more flexible approach to affordability and risk. 51% of brokers had been unable to source a loan for a client seeking an interest-only loan, 49% for borrowers with adverse credit, and 46% for a self-employed clients with irregular incomes.
Poorer mortgage accessibility has also impacted on the market beyond an individual level. A report by the Nottingham Building Society in August found the biggest cause of housing transaction failures was mortgage finance falling through, which accounted for 34% of all failures. Older research from the CML also suggested that lower mortgage availability was having an impact on homeownership, with the research estimating that there were two million households who might have expected to become homeowners since the downturn who were unable to fulfil this ambition as a consequence of these rules.
Additionally, the Association says that some borrowers are faced with higher prices as a result of higher capital requirements, and MMR's lengthy income-verification process has slowed the approval process and increased the amount of time consumers must spend on their applications with lenders or brokers.
IMLA concluded that by narrowing access to mortgage finance in pursuit of a more robust regulatory regime, policymakers have "effectively dampened non-standard borrowers’ prospects for homeownership and made the market less inclusive. Meanwhile lenders find themselves caught between the legitimate aspirations of consumers and politicians, and the constraints of an expanding regulatory framework".
Peter Williams, Executive Director for IMLA, commented: “Following the financial crisis, policymakers and regulators have rightly sought to increase the stability of the mortgage market through several different pieces of regulation. While these polices have reduced risk, they have also reduced non-standard borrowers’ ability to access the mortgage finance needed to get on the property ladder. In order to promote stability, the regulatory regime has effectively created a narrower mortgage market – which is bound to have frustrated the would-be borrowers affected. While the market is still working for borrowers with large deposits and stable jobs, Britain’s growing number of non-standard borrowers face several regulatory imposed hurdles.
“While it is hugely important that market stability is supported, it is questionable whether such a tight regulatory approach is compatible with policymakers’ goal of increasing popular homeownership. It is therefore hugely important that the FCA’s planned Competition Review assesses the role regulation plays in limiting consumer access to the mortgage market."
