Mortgage Market Review in a nutshell

The review stemmed from the regulator’s concerns about the mortgage market in various areas including prudential requirements, conduct of business, distribution and advice, and disclosure and charging.

The requirements were first set out in an FSA discussion paper in October 2009, setting out an in-depth market analysis and assessment of the effectiveness of the regulatory framework at the time - and then sketching out some proposed changes across those various areas.

The MMR proposals were then debated over the subsequent years and this culminated in the following changes which were set out in the MMR Final Policy Statement in October 2012:

1) Introduction of an affordability assessment. The seller (whether it is the lender or the broker) must check that the borrower meets the lender’s eligibility criteria.

2) Ban on self-certification lending. A mandatory income verification is introduced for all loans.

3) Ban on multiple high-risk lending. The FSA proposed prohibiting mortgages with multiple high-risk characteristics (for example high loan-to-value combined with credit-impaired or unstable income).

4) Mandatory interest rate stress tests. The lender must also take account of the impact on mortgage payments of market expectations of future interest rate increases.

5) Ban on non-advised sales for all but the most basic of contract variations and re-defining the definition of advice. Advice would be any sale that stems from any sort of consumer-seller interaction, in which case the seller will have to assess suitability.

6) Limit the “execution-only” exemption to certain situations, such as if there is no interaction, if the customer is high net worth (minimum income of £300,000 or net assets of £3m), or if the customer does not wish to take the advice. Execution-only would be barred for certain types of vulnerable borrowers, including equity release, sale & rent back, and debt consolidation.

7) Extend the approved persons regime to all staff selling mortgages and it would be caught by the Controlled Function (CF) Rule 30 on consumer interaction.

8) All staff selling mortgages would be required to hold a “relevant professional qualification” of QCF level three certificate status, one level below that required for retail advisers under the Retail Distribution Review.

9) The initial disclosure document will be scrapped and the key facts illustration is to be used less. The IDD is replaced by a requirement for firms to disclose key messages to the customer. The trigger points for the presentation of the key facts illustration are being changed to reduce customer information overload.