This is one long consultation process where I genuinely believe engagement with the industry and a lack of ‘rush’ has helped to frame a pretty solid outcome.
Advice
This area will need rigorous post implementation policing if customers are not to be ‘steered’ via the back door into a specific product. FSA is attempting to present this issue as one where consumers involved with ‘interaction’ can only be given a range of facts. To be clear one of the issues FSA set out to stop was the one where a consumer was asked a range of cleverly worded questions in a ‘non advised’ decision tree (interactive or electronic) that led to them taking a product, in the mistaken belief that they had been given advice. It is unusual to see a regulator talk about a ‘general approach’ to a matter as fundamental as this because by default it does leave something of a grey area.
We are disappointed that a suggestion of mandatory advice where a product in the retention area carries an ERC, or fees have gone unheeded. The lender lobby appears to have got its way on this matter and one can only hope that the Perimeter guidance review will pick this up in some more tangible way, although any changes here will clearly be complicated by ‘read across’ issues into other market sectors and as such has effectively been kicked into the long grass for now.
Where new products carry fees, ERCs or complex rate vs fee product options – it is crucial that consumers understand what is in their best interest and in this regard I do feel that FSA has fallen a short of the optimum place, from a pure consumer protection perspective.
Mortgage Prisoners &Transitional Provisions (Affordability)
The fact is that many mortgage customers who took loans out up until 2008 have effectively been trapped by lenders, both as a result of tightening affordability and other criteria driven by MMR consultation Papers being taken as policy and by internal credit risk changes.
The issues that these ‘trapped’ customers can be caused have been suppressed by artificially low interest rates and had this not been the case I believe this particular aspect of MMR would have received far more attention. Indeed this issue only really came into play as a result of earlier Consultation Paper responses highlighting it and FSA has listened by now saying that product and arrangement fees may be added to the loan upon switching with your current lender, or remortgaging away, but only where the customer has made a clear choice to do so. In this area, the FSA has clearly listened to reasoned debate, however for home movers, the position is not quite so clear. A home mover needing to use transitional provisions will either have to trade down market, or cover the entirety of their moving costs from savings. These costs can be considerable and include legal, valuation, removal, mortgage, estate agency and Stamp Duty costs and in this area the FSA has ignored the warnings of potential market impact as they will undoubtedly contribute to holding back transaction volumes. Surely it will only be a matter of time before HM Treasury, Politicians and Consumer Groups start to pick up on the potentially harmful effect this may have on the wider economy, as well as in the potential to hinder social mobility?
Age and lending into retirement
The FSA has clearly listened to the market and has also responded to the changing demographics of society, as well as the increasing amount of anti ageist legislation finding its way into everyday life. The key issue around lending into retirement has always been affordability, not age and as so it is good to see that FSA has recognised this and avoided the temptation to knee jerk and effectively disenfranchise a huge and growing part of our population in the over 50s. But how lenders actually respond to this moving forwards is however another matter.
Interest only
The FSA has very sensibly made it clear that borrowers ultimately have to accept responsibility for ensuring their capital repayment plans are adequate. We are glad to see that this responsibility has not been transferred elsewhere and that whilst a credible strategy has to be given, the responsibility for executing that strategy lies with the borrower.
The market has already largely turned its back on interest only, for a variety of both regulatory and commercial reasons and the MMR provisions simply mean that this change that has taken place is likely to be here to stay.
The good news is that the position adopted makes parasitic behaviour from the claims management firms less likely than would have been the case if responsibility for assessing repayment plans was transferred away from the borrower to the adviser – this in my view is sensible and appropriate use of the caveat emptor principle.
Summary
The MMR Consultation process has been long and at times fractious, but FSA should be congratulated in large part for taking time to engage and listen. There is plenty in the final rules to demonstrate the value of such a robust consultation process and besides from falling short in the areas of advice/execution at the behest of lenders and the lack of an Approved Persons regime for the mortgage sector my first impression is that the industry has been given something that it can work with.
