The regulator has itself acknowledged the possibility that this line of questioning may actually throw up some evidence that the tighter rules – which have undoubtedly helped stop borrowers from overstretching themselves financially – may be preventing some from getting finance they can afford.
The consultation paper says the FCA ‘will consider more generally whether our rules may be limiting innovation that would be to the benefit of consumers’.
They raise the possibility that the MMR may be ‘dis-incentivising’ intermediaries from recommending, and providers from developing, product features that meet the different needs of consumers.
Are the rules stopping brokers from helping borrowers they think don’t fit the vanilla mould?
Simply put, yes. Brokers are terrified of complaints coming back to bite them where they’ve helped borrowers who aren’t in their 40s, buying or remortgaging at 75% loan-to-value (LTV) at three-and-a-half times income with a high street lender they found on their sourcing system.
Thinking outside of the box
Their compliance department wants a paper trail and evidence of affordability, which is fair enough.
But not everyone fits into this neat little borrower allocation. In fact, as most brokers know, hardly anyone fits perfectly into it. People have multiple sources of income, many millions of Britons are self-employed, work on contract, earn salaries supplemented by bonus income, or are paid partly in sterling and partly in other currencies.
There are those who live some of their lives in the UK and some in other countries. There are a huge number of people who need to borrow past the age that they retire. There are pensioners who want to downsize but need to borrow to achieve that and those who took an endowment mortgage in the 1980s and have a shortfall with no repayment plan.
Interest-only borrowers who bought before the financial crash in 2008 pay their monthly mortgage payments but have no idea how to settle their outstanding balances.
All of these people are struggling to take advantage of the rock bottom mortgage rates currently available to those ‘perfect’ borrowers I mentioned earlier. And many of them could really benefit from those rates and can afford the repayments.
It’s not impossible to achieve within the rules as they stand. We manage to find affordable finance for borrowers in positions such as these every day of the week.
The problem is fear. The regulator refers to it as ‘disincentivising’ brokers from recommending the unusual financial solutions to these borrowers but the plain fact is brokers are afraid to. Network compliance likes neat boxes and encourages appointed representatives to recommend mortgages to borrowers who fit.
A divided society
But this is creating an increasingly split society – those who are rewarded for being one type of worker, a salaried employee given access to mortgage finance and thus housing wealth driven by house price inflation. And those denied those opportunities because they choose to work in more flexible and frankly modern ways.
This cannot be allowed to continue – the rules are there to protect people and they do undeniably do that. But they are also penalising people who do not deserve it.
It is a dynamic that is exacerbating the very thing this country is trying to address – the growing divide between the haves and have-nots. Housing wealth is integral to this equation.
There is another issue posed by fear: the question of whether or not a broker is actually failing to do his or her job in advising the client of the best deal for their circumstances.
Too many brokers still consider ‘best’ to be lowest monthly repayment, rate or surety of approval. But there is an argument that it is access to a solution that affords them the flexibility to do what they want with their wealth that is best.
The MMR was not supposed to limit life choices, and yet that is unintentionally what it has done.