Changes in distribution, heightened competition and increased compliance costs under Financial Services Authority (FSA) regulation will reduce the number of mortgage lenders and distributors, according to The Actuarial Profession (TAP).
In its report: Will sales regulation change the mortgage industry? ‘ learning from history, TAP said both transitional and ongoing costs would be significant if the experience of the life industry’s move to regulation was taken as an example. It also pointed to the likelihood of increased fines for mis-selling.
Mark Joannes, co-author of the report, said there were a number of key considerations, including: ‘Understanding the forthcoming changes and developing new market positioning, addressing the question of integrating investment and mortgage advice as efficiently as possible and looking at possible partnerships between large and small lenders which may include the option of sharing expertise and systems.’
A spokeswoman for the FSA, accepted there may be a number of exits from the market, but said it was difficult to make accurate predictions at this stage. In terms of intermediaries she said a lot would depend on whether firms decided to be directly authorised or become appointed representatives. She added: ‘There will be a lot of benefits to statutory regulation including an enhanced reputation, a raising of standards and an increase in consumer confidence.’
Jeremy Goford, president of the Institute of Actuaries, said: ‘This report provides lenders and distributors with serious food for thought on the way forward. The authors’ assessment of likely winners and losers in the new regime may surprise some observers ‘ and not just the projected losers. The expected winners will be under pressure to deliver. The authors’ experience of sales regulation on the life industry and its impact in that industry has been put to great effect in providing a solid framework for identifying the potentially wide reaching implications for the mortgage industry of its own pending regulation.’
Andy Frankish, new build manager at intermediary Mortgage Talk, said: ‘Common sense would seem to support that this is the way things will go, and the announcement about the Clay Cross and Derbyshire looking to merge may well be an example of this. The reasons given for the merger have been an increase of profile and the quality of the lending book, but I am sure Clay Cross has considered its future costs under the new regulation.’
However, Frankish said consolidation may be no bad thing, and could help create a more tight knit industry focused on the needs of the borrower.
He said Mortgage Talk was currently looking at the implications of regulation, and how technology could be used to improve the company infrastructure, and ensure regulatory requirements were met effectively and efficiently.