The Discussion Paper was opened in June, with the 70-plus-page document aiming to launch a “public conversation on the future of the UK mortgage market”.
Key measures under discussion, according to the FCA, include revising responsible lending rules, meeting later life lending demand, adding more flexibility to promote consumer understanding and rebalancing the collective risk appetite in mortgage lending.
Speaking to industry executives, key areas that are under consideration include:
- Focus on ‘under-served’ groups like first-time buyers, the self-employed or those on variable income
- Changes to stress tests, affordability and long-term fixed rates
- Shared ownership
- Interest-only
- Later life lending
- Rent-based affordability tests
- Innovation through artificial intelligence (AI), technology and new products
- Review disclosure requirements, advice standard and application of Consumer Duty
- Climate change
- Digitisation of house buying
The deadline for feedback is 19 September, and it can be sent through an online form or by email to dp25-2@fca.org.uk.
Stephanie Charman, the Association of Mortgage Intermediaries’ (AMI’s) chief executive, said as the deadline approached, the trade body welcomed the regulator’s “proactive approach to engaging with the sector, seeking input and discussion before moving into more formal consultation”.
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She noted that this paper is “crucial in shaping the future of the mortgage market during a time of significant change”, pointing to the recent removal of the advice trigger and growing debate around AI.
“The role of advice in this evolving landscape cannot be overstated; it is essential in ensuring that we meet the diverse needs of consumers. Growth in the mortgage sector hinges on the value of quality advice and the pivotal role advisers play in delivering good outcomes for consumers.
“At AMI, we have dedicated the summer to gathering insights from our member firms and will provide a comprehensive and in-depth response to the regulator. While the discussion paper is broad and covers various topics, it’s important to note that you don’t have to respond to every question. Answering just one question, which is important to your business, will contribute valuable input.
“We encourage everyone in the industry not to miss this opportunity to engage with this discussion paper. Your voice matters,” she said.
FCA Mortgage Rule Review is ‘timely opportunity to reshape the mortgage market’
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said the review “provides a timely opportunity to reshape the mortgage market to ensure it is fit for today’s borrowers, and those in the future”.
He continued: “Changing customer demographics and the increasing demand for tailored lending solutions must be matched by responsible and flexible regulation.
“The FCA’s goal of ensuring the regulatory framework supports innovation, competition and market growth is something we strongly support. The removal of legacy rules that are inhibiting this growth and innovation and enabling greater use of technology along the customer journey are a key part of achieving this.”
Broadhead said the BSA had “consistently highlighted the need for a broader perspective when comparing the customer outcomes of homeownership with those remaining in rental accommodation”.
“We are in full agreement with the FCA’s assessment of the key trade-offs involved to enable a more balanced approach to risk, but would urge the regulator to allow the recent loan-to-income (LTI) changes and clarification on the stress rate test to fully bed in before committing to any future change,” he said.
He noted that the BSA would encourage the regulator to prioritise changes that “deliver the greatest benefit to market growth and to help more people into homeownership through a phased permissive approach”.
“While regulatory change will help shape the mortgage market of the future, it is not a fix-all. To ensure that we enable a dynamic, growing and inclusive market, the mortgage industry must work together to address the challenges we face today and plan for the future. Success will require collaboration and coordination across the mortgage and housing industry, from government and lenders, to conveyancers, brokers and technology providers,” Broadhead concluded.
FCA Mortgage Rule Review goes ‘right to the heart’ of challenges brokers face every day
Nicholas Mendes, mortgage technical manager at John Charcol, said it was an “important chance for the industry to influence the future of mortgage regulation”.
“The proposals go right to the heart of the challenges we face day to day, from helping first-time buyers onto the ladder, to supporting the self-employed and those with variable incomes, to making sure older borrowers have the right options later in life.
“It’s vital that the FCA hears from those of us working directly with clients, so the rules are shaped by real market experience and not just theory. I’d strongly encourage everyone to make their views heard ahead of Friday’s deadline, to ensure the industry’s voice is clearly represented and the impact of these changes is fully understood,” he added.
David Hollingworth, associate director of communications at L&C Mortgages, agreed that the review “covers a lot of ground and there’s lots of elements that I’d expect brokers will be pleased to see are being looked at”.
“Ways to offer improved affordability and potentially a different take on stress testing is interesting. There has, of course, already been a lot of positive movement in the flex that lenders are applying in stress rates and that has already made for change.
“Using rental payments as an alternative test for affordability is something that could land well with customers. It’s often frustrating for a first-time buyer with a track record of managing higher rental payments being told that they can’t afford a cheaper monthly mortgage payment,” he noted.
Hollingworth said it would be “important to understand how likely lenders would be to adopt alternative affordability approaches”, but it could give smaller lenders that can make more individual decisions the “chance to add more flexibility in their approach”.
“Interest-only is also up for review. This is an area that was zoned in on after the financial crisis, and so any change to approach here would no doubt be measured, considering it was an area at one point thought of as a ticking time bomb,” he said.
