FSA Mortgage Market Reforms
The Financial Services Authority (FSA) has come up with a number of proposals for major reforms of the UK mortgage market.
Their just published mortgage market review discussion paper is an attempt to make a better market for consumers and one that is more sustainable for the participants.
And the active involvement of the FSA in the mortgage markets reflects a changed approach for the regulator, one that is based on a more intrusive and interventionist style of control.
The key features of the review are as follows:
- introduction of affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
- ‘self-cert’ mortgages to be banned, meaning that a verification of income is required;
- removal of products that contain certain ‘toxic combinations’ of characteristics which put borrowers at risk;
- abolition of arrears charges when a borrower is already repaying and making sure that firms do not profit from people in arrears;
- mandatory that all mortgage advisers be personally accountable to FSA;
- wish to see FSA’s brief to cover buy-to-let and all lending secured on a home.
Jon Pain, FSA managing director of supervision, said:
“The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.
“The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.
“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”
The review has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’s existing work on capital and liquidity.
The FSA make the point in their announcement that the proposals are aimed at tackling the current perceived problems with the mortgage market. And the regulator stresses that it has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
The FSA paper will be out for discussion until 30 January, 2010, during which time it will actively seek views from the mortgage industry, consumers and consumer groups. A further statement, outlining intended courses of action, will be issued in March 2010.
Guest Article by Neil Camp
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My name is Alan Potts and I'm the Editor of the BUYability web site and Managing Director of BUYability Limited. You can connect with me or keep up to date with new posts on this blog via the following social media sites: 
