MortgagesApr 22 2014

FCA reveals Autumn thematic review of MMR

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The FCA expects “a period of adjustment” after mortgage market rules are implemented on 26 April and has confirmed a thematic review of MMR later in the year, Linda Woodall has said.

The director of mortgages and consumer lending at the FCA said the regulator expects MMR to “take the froth out of the mortgage market” but was insistent the new rules would “not be the cause” of any possible slump in mortgage lending.

She confirmed the FCA will run “formal testing” later this year to assess whether firms are lending responsibly, customers are being given appropriate advice and arrears are being handled responsibly.

Ms Woodall said beyond these three key assessment areas the regulator would be on guard against “the consequences of tightening” criteria in one area.

Specifically these include the increased risk of gaming buy-to-let and potentially using second charges to top up first charge loans.

She confirmed that the regulator was “very mindful” of the risk that loan-to-income ratios could rise as a result of MMR affordability assessments and said it would be watching for any “massive uptick” in loan-to-income or loan-to-value ratios as well as lengthening mortgage terms.

Ms Woodall highlighted lender and broker online execution-only offerings as an area it would be monitoring post-MMR and warned that any online system that steered customers through questioning towards a “limited” range of mortgage products could be construed as advice.

Advisers worried about submitting mortgage applications for customers who have rejected their recommendations should ensure they have written documentation to prove every stage of the advice process, she said, and they should secure a signature from clients agreeing that their decision to reject advice gives them less recourse to complain to the Financial Ombudsman Service.

Ms Woodall confirmed that 85 per cent of lenders were MMR ready in January “at last count” with the remaining 15 per cent either deciding to exit the market, saying they would be ready by 26 April or saying they would not lend until they were fully compliant.

She added that the regulator was “alive to disclosure issues” and confirmed that if the regulator saw firms failing to disclose information correctly to consumers it would issue further guidance.

She added that the FCA “was mindful” that brokers could be spending extra time on applications, leading them to have to charge fees in future but said she expected the process to “get slicker as the new rules bed in”.

Ms Woodall also confirmed the regulator has already begun work assessing how second charge mortgage lending will fit into the regulated regime.

Adviser view

Ying Tan, managing director at The Buy to Let Business, said: “Gaming buy-to-let has the potential to be a challenging issue. However I do believe both lenders and brokers have strong systems and controls to mitigate this risk.

“Lenders and all good brokers have numerous plausibility checks which can quickly identify gaming, lenders take it very seriously and rightly so and criteria has tightenend to reflect this over the past couple of years.

“Post-MMR we need to continue to remain on our guard to try and reduce the risk of this type of abuse.”