However, the FSA said that estimated rise in compliance costs will be “less significant” than the MMR’s direct impact upon the amount of mortgage lending that can take place.
In addition, the FSA admits the price of mortgages is likely to rise as compliance costs are passed on to borrowers, with its cost benefit analysis revealing that average ongoing costs of affordability requirements are estimated at £17 per mortgage alone.
The FSA said: “Compliance costs arising from the MMR will to some extent be passed on to borrowers, leading to higher mortgage prices. If the MMR were to have a negative impact on competition in the mortgage market this would also lead to higher mortgage prices. This would lead to a lower demand for mortgages and lower demand will potentially lead to lower house price growth.”
The FSA’s cost benefit analysis shows that the biggest one-off costs of the MMR will be caused by the changes in distribution and disclosure, such as requiring all sales to be advised and disclosure requirements.
These proposals will cost an estimated £22m to £33m to implement, mainly owing to one-off professionalism costs of £17m to £28m. Ongoing compliance costs will be £2m a year.
The largest rise in compliance costs will be felt by the non banks, with capital compliance proposals set to incur them annual costs of between £16m and £126.8m a year. The FSA said it expects costs to “be at lower end of this range”.
Affordability requirements will result in costs of between £4.8m to £14.3m a year and a one off price tag of £3m to £15m.
Income verification is likely to have hardly any set-up costs, but will require £7.1m to £10.3m a year, while interest-only proposals will incur an estimated one-off cost of £14.7m and ongoing costs of £16.7m.
The MMR proposals will not significantly the FSA’s costs, however, as there will be no changes to how it assesses compliance by lenders and brokers.