By Rachel Williams
The FSA has yielded to industry pressure and is to regulate all mortgage loans taken out for at least five years.
Under the Government’s initial proposals announced earlier this year, the Consumer Credit Act (CCA) of 1974 was to take responsibility for some loans, including those under £25,000.
The amended proposals however will mean certain products, such as flexible mortgages and equity release mortgages, will now be regulated by the FSA, rather than the CCA.
John Charcol has welcomed this move as it believes that the governing of mortgages by two regulators would complicate the Government’s attempts to make mortgages more comprehensible for the public.
Ray Boulger, technical director at John Charcol, said: “Until now there has been more than one regulator responsible for mortgages depending on their size, use and level of advance and this has caused an element of consumer detriment.”
Problems have previously occurred with flexible mortgages. This is due to the drawdown facility which brings them into the CCA’s remit.
As a consequence, borrowers need a 14-day cooling-off period before funds can be released. Boulger said: “This means that if any aspect of the mortgage offer needs amending, such as changing the spelling of a name, then the whole cooling-off period starts again. Brokers need to be aware of this as we have seen cases where borrowers have been forced to take a different product with the same lender to complete on time.”
In October, Woolwich removed the credit card facility from its Open Plan Mortgage in order to get round this problem. It replaced the credit card with a current account, exempting it from the CCA. As a result it could remove the cooling-off period and process loans faster.
But not all aspects of the proposals have been welcomed. Paul Howard, sales and marketing director at Mortgages Plc, said that aspects of the consultation paper appear to stipulate against self-certified mortgages.
He said: “Under the proposals lenders will have to ascertain the borrowers’ affordability before granting a loan and suggesting that if lenders are not doing so, the FSA could use its powers to correct this.”
However the whole premise behind self-certified lending is that borrowers do not need to prove their income. “The self-cert market is enormous for both prime and sub-prime borrowers and this suggests that people requiring self-cert mortgages will find these facilities no longer available,” said Howard.
He added: “We can see where the Government is coming from but many borrowers find it hard to obtain a mortgage using traditional parameters.”
Another glaring omission was the regulation of buy-to-let mortgages which were categorised as commercial mortgages and will not fall into the FSA’s remit.
Mike Boles, director at Saville’s Private Finance, said that individuals purchasing second properties as investment vehicles should not be regarded as commercial investors and should be awarded the same level of protection as owner-occupiers. “This means there will be less consumer protection for these borrowers and they will be reliant on the goodwill of lenders and intermediaries,” he said.