The Mortgage Market Review: The industry response

Several commentators have cheered the FSA's revisions to its initial proposals to better protect and cushion vulnerable borrowers.

However, this paper also signals a new era in far tighter mortgage lending. In future, mandatory affordability checks will bar more potential applicants from the market.

We round-up the views of key commentators to give you a birds-eye view on the sector.

On the ban on non-advised mortgage sales:

Robert Sinclair, director of the Association of Mortgage Intermediaries (AMI), said: "Buying a house is a substantial financial undertaking, and we have long argued that providing consumers with expert advice is a process that cannot be left to chance. The MMR's proposals will ensure many more consumers are given the support and guidance they need to make better and more informed decisions. The need to evidence income and assess committed and essential expenditure will deliver sustainable loans, together with new protections for those who are credit impaired.

"We are also pleased that the regulator has recognised the importance of providing a level playing field for lenders and intermediaries on the issue of qualifications and determining product suitability. It is important that consumers are confident that at all stages they are receiving advice from qualified staff acting in their best interests.

"The only area we consider needs further work is on the transitional arrangements, where the work to assist mortgage and property prisoners might benefit from further development. We need to ensure that people do not get trapped on escalating variable rates, unable to access the protection afforded by fixed rate alternatives that might be cheaper in the longer term."
On responsible lending:

CML director general, Paul Smee, said: "Rules need to be practical and avoid unintended consequences. Whilst there is much detail to be pored over, the FSA's new proposals seem to strike broadly the right balance. If lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, then they need a regulatory framework which also supports that objective.

"We look forward to working with the regulator to iron out any remaining wrinkles and to move towards a smooth process for implementation. Ideally, this would take account of the European legislative proposals too, so that as far as possible the costs of regulatory duplication are avoided."

On vulnerable and non-standard borrowers:

Paul Broadhead, head of mortgage policy at the BSA, said: "The devil is always in the detail but these proposals seem to represent a welcome shift in policy by the FSA. No-one is looking for a regime that permits lax lending practices, however the original proposals were in danger of locking credit worthy borrowers out of the market or imprisoning those with immaculate payment records, but non-standard profiles, in their current homes and loans.

"This seems to have been avoided which is good news for the self-employed, those in existing self-certified mortgages and people with negative equity. The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, whilst maintaining a sensible level of consumer protection.

On MMR implementation:

Peter Williams, IMLA Executive Director said: "The new regime is not due until 2013 and there is the issue of transitional treatments but we have another round of consultation and a longish lead time to implementation to deal with this. We hope the momentum built up and the approach adopted by the FSA is not lost as we move towards the new arrangements for regulation."

On mortgage advice:

Andrew Montlake, director, Coreco Group: "We are especially pleased that the FSA has recognised proper advice should be the cornerstone of any mortgage proposal and that there is indeed a large degree of confusion from the general public over whether they are receiving advice or not.

"This is a brave and necessary step taken by the FSA which not only levels the playing field between Mortgage Brokers and direct lenders, but will improve the prospects for all consumers taking out the largest loan they are likely to obtain in their life.

"Whilst some are able to opt-out of the advice process, the FSA has also gone further in identifying vulnerable consumers, such as those consolidating debt, who will not be allowed to opt-out and must always take advice. This is stunningly simple common-sense and the FSA should be applauded for this.

"Whilst this may not be the ultimate panacea to please everyone, it is a sensible, practical and courageous offering which will do much to ensure the illness does not become an epidemic again, whilst it should also avoid critically harming the patient."

Grenville Turner, chief executive of Countrywide, said: "Where the proposals fall short, by the FSA's own admissions, is that 1 in 40 of new customers that would currently be eligible for a mortgage could potentially struggle to get a mortgage if the proposals were introduced in this market. In an environment where lenders are already being extremely cautious with their lending criteria; by placing all affordability assessments at the doors of lenders risk teams this could create an even stricter lending environment.

"However, lenders now have an opportunity to adapt their verification procedures to ensure that self-employed customers, who traditionally used self-certified products are not left out in the cold. One of the measures that can be considered is assessing the spending patterns of the applicant rather than entirely focusing on income levels."

On the non-advised sales ban:

Andy Caton, corporate development director, Yorkshire BS, said: "The move to require some borrowers to undertake an advised process appears to be a positive one, however we would like to see clarity on the definition of 'vulnerable' and 'high net worth' customers. It is also important that individuals are able to select an execution only service, whichever channel they choose to use.

"Finally, the industry must be given appropriate time to implement any new systems and processes and we would urge the FSA to consider this when setting any timetable for implementation."

On arrears and repossessions:

Mark Blackwell, managing director of xit2, said: "The Mortgage Market Review has highlighted why headline figures on arrears and repossessions should be taken with a pinch of salt. It has shed some much needed light on the seriousness of the problem.

Lenders are under intense pressure from government and the courts to help borrowers in arrears. But as the Bank of England has said, lenders can't sustain their current level of tolerance, particularly given there is more forbearance to high LTV borrowers than originally assumed. One in five borrowers are benefiting from forbearance, which is camouflaging serious problems in borrower finances.

It will only take a small downturn in the economy, or a small rise in the base rate, for these underlying dangers to rise quickly to the surface. There is a block of roughly 30,000 borrowers in arrears of 10% or more. These are ‘danger' borrowers who are already on life support machines courtesy of lenders' generous forbearance policies. With the economy in a downward spiral, lenders will be forced to switch some of these life support machines off. At that point, repossessions will soar."

On lending system changes for lenders:

Charles Haresnape, managing director of Aldermore Residential Mortgages, said:

"The MMR outcomes are fairly predictable. They make sense in the main but I do wonder why intermediaries are no longer required to assess affordability in order to give advice. And some of the changes, including interest only calculations, will require significant and costly system changes for lenders. I hope the cost/benefit analysis has factored this in."

On the FSA:

David Copland, CEO, Pink, said: "The FSA's view on issuing KFIs, interest only mortgages and, lending into retirement had been influenced by the feedback received.

"I am encouraged by the FSA's approach to the feedback from the previous three papers, the FSA has listened and acted upon the feedback, this paper is both succinct and the proposals are far more practical. I also agree with their timelines - this is all about making sure that when the market recovers we have rules in place that protect the consumer but also allow the market to expand again a controlled manner."

Andrew Baddeley-Chappell, head of mortgage strategy and development at Nationwide, said: "We welcome the review and the fact that the FSA has responded to the issues raised by borrowers and lenders. However, the current mortgage market is fragile and growth is relatively weak. With this in mind, we question whether now is the right time to ask the industry to divert its focus onto further regulatory changes. Even more regulation, expected from the EU, is likely to result in further changes to the regulatory framework. It would be far better for the UK and European regulation to happen at the same time.

On bridging:

Bill Warren, managing director of compliance service, Bill Warren Compliance LLP, said:
"This is the FSA's big area of concern - that the bridging market is being used or attempts are being made to use it to clean up credit problems. I don't personally believe this is as big an issue as the FSA believe but time will tell.

"Much of the section relating to bridging lenders is looking at the risk profiles and need for greater capital requirements, even though the FSA accept that the nature of bridging loans terms (up to 12 months) means lenders do not entirely need the higher capital adequacy. However they seem eager to be risk adverse rather than accept industry records.

"In summary there are clearly some challenges for bridging lenders especially those offering regulated loans resulting in less lender flexibility going forward but greater protection for consumers. So based on this consultation paper not a bad result for bridging lenders so far."

On interest-only:

Bob Riach, Riach Independent Financial Advisers, said: "I have always worked with a "common sense" approach so that home buyers don't end up borrowing more than they can afford.

"Lenders have already tightened up on their lending criteria. I have clients approaching me for remortgage that when I check their details they should not even qualify for the mortgage they have.

Lenders are being told they must better assess the affordability of loans; I expect that as usual lenders will initially take this too far and be too strict with new borrowers. Then when they see a fall in new business they will start to relax their rules."