Simret Samra (SS): What are your biggest compliance fears now and in the future?
Patrick Bunton (PB): Mortgage fraud, lenders tightening criteria and future issues arising if the MMR Transitional Provisions are not properly thought through and focussed on consumers.
Firms must be vigilant to ensure they are not being sucked into submitting applications where the core facts are either not plausible, or evidence-able. For example, on incomes, risk should be removed by insisting on documentary evidence of income on all cases, something we have done at L&C for many years.
Moving forward we see that interest-only and inadequate means of repayment is a major issue that needs further work. We have lenders accepting projected endowment maturity values, in other words factoring in future premiums and growth on them as well as the accrued investment to date. In contrast, some of those same lenders will not accept an ISA, or in some cases limit the amount that can be placed on interest only to just 80% of the current underlying value.
Endowments are being given preferential treatment when it comes to borrowing, whereas lenders will sell ISAs on assumed growth rates to retail savers they say 0% growth or less on an ISA linked to a mortgage – a dangerous contradiction and potentially one retail savers could exploit if assumed growth rates on savings ISAs are not achieved.
(SS): When are we likely to see the FSA implement Individual Registration?
(PB): We have long argued for Individual Registration as a tool the industry needs in order to help us drive out and keep out the undesirable minority.
The reality is that the FSA knows this tool works as they have it in the investment sector and it is very disappointing that the tool we have been asking for as an industry is still not available, especially as we see enforcement actions taken against individuals. There really can be no excuse for the FSA failure to deliver on this important issue.
(SS): How can transitional arrangements be expanded to help deal with mortgage prisoners?
(PB): MMR transitional provisions and TCF treatment of existing customers are in need of urgent address.
At a political level this could all create very real issues for politicians as constituents walk into MP’s surgeries with mortgage-related problems more frequently. It could also hold back social mobility and have impact on the employment market.
Specifically, it feels as if consumer detriment to the huge numbers of existing borrowers now sits at the bottom of the pile of everyone’s priorities and I believe that this may prove to be a huge mistake.
Maybe it will take action under Unfair Contract Terms legislation to halt this, but right now it doesn’t feel as if anyone is pushing back on lenders, or worrying about wider impact on the overall health of our vitally important UK housing market.
Indeed, the feeling being generated is largely that lenders are running in the direction that the regulator wants and that in itself is a huge, huge concern – full steam ahead with no lookouts on the bridge and from a regulator who recently told the Treasury Select Committee that had MCOB been policed properly, no market intervention would have been necessary!
We feel that there is at least an argument that adoption of transitional provisions for any customer whose mortgage was taken out pre MMR should be mandatory, not optional.
We also think that it is nonsensical that if a customer is choosing to move from a low variable rate to a slightly higher one, in order to gain the security of a fix the transitional provisions would not apply, as the monthly payment would be higher.
These are precisely the sort of customers everyone should be encouraging to look at fixes especially if rising rates in future would break their household budget and as and when rates do start to rise, the scale of the problem will very quickly become crystallised.
(SS): Are we likely to see lenders start developing strategies to help mortgage prisoners in the coming months?
(PB): This is unlikely given the lack of appetite in the market place. Show me a lender who wouldn’t like their existing customers to become captive?
Prisoners in this scenario suit only one party, the lender and there will be a clear temptation in this situation for lenders to exercise some pricing power and drive margin positively. Unless or until we see a return of genuine competition in the market place there is unlikely to be a driver in this area and that means that in the interim it is the borrower who could quite conceivably become the victim.
This is an area that is linked directly to the proposed Transitional Provisions and it is my view that FSA needs to think very carefully about unintended consequences and market impacts that will be caused by implementation of MMR in its latest proposed format.
(SS): Would it be better if UK and European regulation were evolved in lockstep?
(PB): Definitely, it is imperative that we do not see two step regulation with all of the additional costs and uncertainties that would create.
To me it is crucial that FSA should delay implementation of MMR until European regulatory agenda is decided upon and known so that any read across items, or adjustments needed to MMR can be properly incorporated – it would be very unhelpful to force the mortgage market through two sets of regulatory change, when it can and should just be dealt with once.
