Regulatory intervention is nothing new for the mortgage market especially in an environment where the sector is seen as a considerable driver for UK plc, but also one which could be viewed as helping overheat the economy. The dependence on the housing market, especially when it comes to some big-ticket tax returns, is self-evident. However, there lies a balancing act to be performed by both regulator and government in ensuring a healthy middle ground is found.
Given the credit crunch and subsequent recession, it is perhaps not surprising that all stakeholders are somewhat jittery about a runaway train type of mortgage market, which again is why the sector is under considerable scrutiny. Given this situation it was not surprising to see the recent announcement by the Financial Conduct Authority (FCA) of a planned large-scale review of the mortgage market and its subsidiary parts, including the engagement of administrators, packagers and estate agents, all of which would ordinarily fall outside its scope.
The mortgage market jigsaw
To say this is wide-reaching would be something of an understatement and, while the initial focus appears to be on barriers to entry, competition, expansion and the choices that customers make, one can’t help thinking that there will be other areas drawn into the debate. The mortgage market is made up of a series of connections that are all dependent on each other, therefore any review has to look at the market in its entirety. The expectation will be that suggested changes to one part are likely to have significant consequences in many other areas.
Some might suggest the FCA is moving beyond its remit here in looking at areas outside its scope, however, the fact is that the market is one big jigsaw and needs reviewing in its entirety. But, what will this mean for mortgage practitioners themselves – lenders, advisers and (rather importantly) their clients? Firstly, it seems highly unlikely that such a broad review will not come back with suggested changes, therefore, perhaps we can all expect ‘MMR2’.
Secondly, it seems obvious that the Mortgage Market Review (MMR), and the way it has been interpreted and implemented, will be closely looked at. There’s no doubting that the MMR theory has not quite translated into the MMR practice the FCA might have envisaged. For example, just look at the affordability and underwriting gold-plating that remains a big part of the market and has effectively made it much more difficult for certain borrower groups to secure a mortgage.
Prepare for change
In areas such as lending into retirement, interest-only mortgages, and dare I say it the high loan-to-value market post-HTB2, there could be said to be an ongoing shortage of lenders and product choice. Why might this be? Is it all about risk or are certain practitioners put off by the extra regulatory responsibilities that may come with delivering such product choice? And what do potential new entrants see when they look at the broader market and these sectors specifically? Is it simply a question of it being easier to target the buy-to-let market, for instance, rather than look at a residential offering which supports the government’s ongoing goal of greater homeownership?
This review is likely to open up a number of lines of debate and, potentially, action for the regulator. At the outset it appears to think the status quo is not working and therefore once it works out why that might be the case, I would anticipate that all stakeholders get ready for another period of regulatory change.