Media Briefing Note: FSA's Mortgage Market Review Policy Statement 12/16
25 October 2012
LONDON, 25 October 2012 - Commenting on the publication this morning of the Financial Services Authority's Mortgage Market Review Policy Statement PS12/16, Roger Tym, Partner in Hogan Lovells Financial Institutions Group, said:
"Will the new rules mean there will be less competition on product type and more on price? Probably – the FSA's new mortgage rules are likely to streamline the types of mortgage products offered in the market. For example, new stricter affordability tests for interest only mortgages mean that they are likely to become much rarer and, coupled with the regulator's increasing focus on product intervention, we're likely to see reduced choice of types of mortgage products available to customers – instead, the basic price could become even more of a key factor in a customer's decision when shopping for mortgages."
In addition, he noted that the FSA's new rules could lead to a re-modeling of the mortgage intermediary market:
"In the past, where mortgage brokers carried out affordability checks to assess whether a borrower could meet the mortgage payments, the responsibility for carrying out that assessment lay with the broker, where separately authorised. However, under the new rules, the responsibility for ensuring an appropriate assessment of affordability will rest with the lender, even where such an assessment is outsourced to an intermediary. As a result lenders will want more control over the activities of their intermediaries, and it's possible that this may even give rise to a wider re-assessment of the mortgage intermediary market."
A question also arises regarding whether the FSA's new approach to regulation of business lending will have an impact on the volume of lending to small businesses:
"Previously the FSA considered exempting mortgages for business purposes from its new rules. However, on balance, the FSA has decided that those taking out business mortgages should be afforded protection, albeit not to the same level as ordinary consumers. For those hoping to take out personal mortgages to support small businesses, they may now have to surmount additional hurdles in order to be granted a loan."
The new rules mean that lenders will have to make many changes to their systems and procedures, however there may be more to come:
"Lenders will have to make numerous changes to their systems and procedures in order to comply with the new rules when they come into force. The will be a costly and time consuming process, but once the new practices have been implemented, it may not be long until lenders have to make yet more changes. A draft directive on mortgage credit is currently being considered at a European level; if this is brought into law, lenders could be required to make further changes, particularly in terms of the information they are required to disclose to prospective borrowers."