The full cost of statutory mortgage regulation is unlikely to impact on the mortgage market, the Financial Services Authority has forecast, with the average homeowner paying just £9 a year more.
A cost benefit analysis of the statutory regulation of mortgage advice showed that homeowners would have little to pay if they were forced to bear the brunt of costs. But the pace of market change has made finding a ball park figure difficult and the cost to consumers could rise or even fall.
The report, published in October, noted: “The market is changing quickly and efficiency gains are being realised without regulation. Both these things make it hard to quantify, other than in broad terms, the potential benefits of statutory regulation.”
However, the internet and technological advance in the mortgage market could help keep consumer costs to a minimum.
The report added: “A ‘hi tech’ approach could bring lower costs as it should be possible to have every piece of mortgage advice given captured on pre-agreed software and then downloaded to the regulator. This would allow desk-based analysis and highly focused follow-up, greatly reducing the need for physical – and expensive – visits to firms.”
It also praised the introduction of the Council of Mortgage Lenders’ Code and said that, as a result, the cost of regulation on lenders would be small – about £32m a year and a one-off cost of £36m. However, that would only be the case if any regulation took on the same shape as the current regime used by the Personal Investment Authority.
If lenders passed on the cost direct to the consumer, the report said that interest rates would have to rise by about three-tenths of a basis point, increasing the cost of a £60,000 mortgage by 15p per month.
However, the total compliance costs of regulation are estimated to approach £130m a year, plus a one-off cost of about £200m.
The report said: “Even in that case, the total effect on interest rates paid by consumers would be an increase of not more than one and a half basis points (or 75p per month on a mortgage of £60,000). Such an increase seems unlikely to have a material effect on the market.”
The report went on to say that to facilitate the regulation of mortgages, the Financial Services Authority would need up to about 250 extra staff and incur total additional expenditure up to £17m per year. It also warned that a major uncertainty affecting these estimates of cost was the strategic response of 8,000 appointed representatives to statutory regulation of mortgages.
A spokesperson for Northern Rock said it was too early to say whether the cost of regulation would be passed on to the consumer. But they added: “It would be a grandiose statement for a lender to say they could absorb the full cost of regulation. If there is not a charge for a service then others will subsidise it.”
Michelle Vosper, parliamentary officer at the CML, said that ultimately it would be for Government to decide.
“The general assumption seems to be that the cost of regulation would be met by the consumer. At some point in the future, Government will have to make the decision as to whether the benefits of regulation outweigh the cost to consumers,” she said.