Industry spokespeople have commented on the regulator’s call for inputs to form the start of the review as positive but badly timed, with the Mortgage Credit Directive imminent and the Mortgage Market Review only recently bedded into the industry.
The review will also look at how elements of the market such as third party administrators and packagers, that fall outside of the FCA’s regulatory scope, have an impact on competition.
Association of Mortgage Intermediaries chief executive Robert Sinclair said it was unfortunate that the FCA had chosen to launch the review at a time when the market is yet to absorb the changes the MCD will bring about.
“I still think the industry needs some time to draw breath and work out where it sits following recent market intervention. Having said that there are clearly some areas where they are going to want to focus their attention and it’s incumbent for them to look at a situation where you have six lenders and six distribution groups that appear to control 80% of the market,” he said.
Sinclair said one of the most problematic areas for borrowers was the requirement for lenders to assess affordability over the whole of the mortgage term.
“How can you judge affordability over a 30-year term? It’s genuinely very difficult. I think a more practical level is looking at that over an initial five-year period, where during that term you’re also stress testing whether that deal is affordable for the borrower. I think that’s a much more appropriate measure that could be applied to the market to make innovation or different outcomes much more likely to happen.”
An online poll conducted by Mortgage Solutions found that over half of respondents felt the FCA’s upcoming review would stifle product innovation, while 31% believed it would offer borrowers more choice of lenders and products. Some 16% of readers said the review was likely to offer customers more lender choice but less product innovation.
John Charcol senior technical manager Ray Boulger also welcomed the review but said lack of competition was down to a number of regulatory bodies ‘trying to interfere’ in the same market.
“If I could explain a reason why there’s a lack of competition in the market I would put that down to the Prudential Regulation Authority. We went from a situation pre-crash where most people would accept there was over-capacity in the market and as that capacity came back after the credit crunch, the regulator began to stifle innovation.”
Dominik Lipnicki, owner of Your Mortgage Decisions, said he was cynical as to what the FCA was looking to achieve.
“My worry is that it won’t have that much of an impact as I’m not sure how serious they are about creating any real solutions. Certain borrowers that are perceived as higher risk are the customers that the review really needs to address, such as mortgage prisoners, older borrowers and interest-only customers.
“As for potential concern around players in the market such as third party administrators and packagers restricting competition; that worry has gone since the Mortgage Market Review and credit crunch. For example, I can’t remember the last time my advisers used exclusive deals from a packager.”
