Speaking at the Westminster Business Forum policy conference, ‘Next steps for mortgage markets in England’, Janet Oram, head of asset-backed securities at Universities Superannuation Scheme, said: “From a consumer perspective and also from an investment perspective, I’m actually quite cautious about widening [mortgage] availability if it risks coming at the expense of looser criteria rather than smarter criteria, and more risk to consumers.
“Lenders have always had a level of consumer protection obligations, and more recently, Consumer Duty regulations. But if you look at what went on in the mortgage market in 2004 and 2007, the competition for volume was a huge driver in a progressive loosening of criteria.”
Oram said this made regulation a “really important backstop” and it needed to be in place, even if it was not the “ultimate driver”.
She added when it came to widening mortgage affordability, unless there was a “balancing increase in supply of properties, we are likely to lead ourselves in the situation – in a few years’ time – where we have a similar level of people who are now unable to afford the higher mortgage at the higher house prices that have resulted from an increase in demand”.
In this scenario, people would be even less cushioned against inflation, job losses and tax rises, Oram said.
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She said there was a benefit to widened mortgage affordability but said there was a risk of ending up in “another [credit] crunch”.
Oram added that she was “really careful” regarding ownership statistics, too, as a rise in the population alongside stagnant housing supply meant ownership rates would “mathematically” reduce.
Mortgage innovation within the Consumer Duty framework
Rosanna Bryant, partner and head of financial services regulation at Addleshaw Goddard – a law firm that works with mortgage lenders – said in a post-Consumer Duty world, the opportunity was to “challenge the restrictive regulatory framework developed post-financial crisis” and move towards a more “principles-based regime” that is flexible enough to support growth and innovation while ensuring good consumer outcomes.
She said there was currently a “lack of flexibility” in the market and the rules introduced after the Mortgage Market Review risked not supporting innovation or facilitating consumer access to the market.
However, she said, consumer protection and responsible lending “must remain”, and many of the lessons from the global financial crisis were still relevant.
Bryant said regulatory consistency between the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) would be key, as well as certainty with how concerns were handled by the Financial Ombudsman Service (FOS).
She said within the Consumer Duty framework, there was a chance to simplify standards and give more flexibility to firms, while operating within the guard rails of good customer outcomes.
Bryant said the regulatory environment now was very different to how it was before the financial crisis, and there was an opportunity to use that to shape “detailed regulatory rules to help innovation and better help… for borrowers”.
