As part of its response to the FSA’s Mortgage Market Review consultation paper, the CML’s analysis using data from its regulated mortgage survey reviewed what effect the proposals would have had on business made since 2005.
It found that 51% of “good loans”, around 3.8m that have never suffered payment problems, would potentially not have been made, while an estimated 151,000 arrears cases and 38,000 repossession cases might not have occurred.
The CML said this was a disproportionately modest number to prevent by comparison to the impact on such a large swathe of creditworthy borrowers.
The CML said that it did not expect the impact of the FSA’s proposals to be as high on new business as on past business, due to the significant changes the market has seen in the last few years.
However, the trade body said its analysis showed that the future effect of the MMR could be far higher than the FSA’s own impact assessment has shown.
The FSA has suggested that 17% of borrowers who took out mortgages between Q2 2005 and Q1 2009 would not have been granted the mortgage they obtained if the proposed requirements had been in place.
However, the CML said this figure only took into account the impact of lenders using a 35% of income affordability assessment and did not address other proposed requirements, which the CML included in its analysis.
These were: assuming the mortgage is on a capital repayment basis with a maximum 25 year term, applying a 20% income buffer to the affordability test of impaired credit applicants, and applying a 2% above the initial interest rate “stress test” to assess affordability if rates rose.
This resulted in the proportion of loans affected rising to 51%.
First-time buyers would have been particularly badly hit, with 95% or 730,000 first-time buyers between Q2 2005 and Q1 2009, who would have been denied a mortgage under the proposals, never experiencing payment difficulties.
Impaired credit borrowers would also have been hit hard, with 80% denied a mortgage of which 20% were in payment difficulties in 2009. The CML said this again showed that the number of borrowers prevented from accessing mortgages despite not suffering payment problems far outweighed the number “protected” from difficulty.
In addition, CML analysis showed that the FSA’s proposals would not dampen boom and bust, with the outlined suggestions having most impact in 2008 when lending criteria had already tightened.
The CML stressed it was not against regulatory change and accepted many of the principles proposed, but added: “Our concern is to make sure that the rules which are finally implemented are clear in their intended impact, practical in their implementation, and fair in their overall effect on consumers, intermediaries and lenders alike.
“Like the FSA, we want a market that is sustainable for all market participants, and a flexible market that works better for consumers. This analysis suggests that there is a very big question over whether that is the environment the current proposals would create.
“Indeed, we think it shows that neither of the stated outcomes will be effectively achieved.”
The FSA said in a statement: “Our proposals are designed to address the major failures that have occurred in the mortgage market and we are actively consulting with all stakeholders to ensure we get the right solution.
“Our evidence shows that 16% of borrowers are already financially overstretched and they are facing problems now as a result of their lenders’ practices in the past, not the MMR. But for now borrowers are also benefiting from historically low interest rates and house price inflation, which cannot go on forever.
“This is why it is imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions.
“We will continue to work with industry and consumers to establish a strong mortgage market where those who can afford mortgages are able to get them. It is in the interests of all that we get this right: both lenders and borrowers suffer from irresponsible lending.”
