The Panel said proposals in the CP10/16 paper, part of the Mortgage Market Review (MMR), enlisting a 25-year repayment term to calculate affordability is problematic with higher life expectancies and longer working lives making longer terms useful for many.
It also said the disposable income calculation would penalise applicants who are able to cut expenditure to afford the mortgage, but haven’t done so yet.
“The Panel believes that this formula should therefore be amended to refer only to committed and other non-discretionary expenditure. It should be for the lender to judge whether the consumer would be able to service the mortgage, if necessary by reducing discretionary spending,” it said.
It also said the proposed extra affordability buffer for credit-impaired consumers would not differentiate between consumers with very different circumstances. It also felt stress-testing against future interest rate changes may not necessarily be appropriate.
The Panel reaffirmed its belief in the interest-only market, stating the products remain ‘legitimate’ for some customers who have a range of reasons for choosing them.
Meanwhile, the consumer watchdog panel said the regulator would need to carry out a rigorous cost benefit analysis on all its proposals as a ‘sense check’ and assess any negatives as well as the positive.
“The FSA analysis must fully account for the social and welfare impact on consumers, for example, those who have to settle for a less preferred property than they otherwise would have been able to afford if the MMR had not been implemented, as well as those who are deemed no longer able to afford to buy at all,” it said.
“Similarly, it is imperative that the FSA quantifies the impact on those who may be forced to sell their properties at a time not of their choosing and when market conditions are not favourable,” it said.
It added that transparency and ability to shop around was crucial for a well-functioning mortgage market, where lenders should compete on price and customer service.
“Intermediaries and lenders should be complying with FSA rules and principles, with those falling short being named, thus offering those firms treating their customers fairly a business advantage,” it said.
The Panel also expressed concerns about the upcoming tripartite system of regulation with the separation of the business conduct regulator and the prudential regulator in the new structure FCA v PRA and the FPC, which can override both new organisations.
“It is not clear that the overview, which the FSA Board currently has, will be possible in the future world, where the responsibilities of the individual regulatory bodies will be much more closely defined, said the Panel.
