Despite having achieved “successful implementation” of the Mortgage Market Review the industry faces a number of challenges in the near term as a regulatory review of the new regime looms just three months after it came into force, the Council for Mortgage Lenders has warned.
In April Linda Woodall, Financial Conduct Authority director of mortgages and consumer lending, confirmed the watchdog will be running a thematic review of the MMR in the Autumn of this year.
Ms Woodall said the FCA will assess whether firms are lending responsibly, customers are being given appropriate advice and arrears are being handled responsibly. Beyond these three key assessment areas the regulator would be on guard against “the consequences of tightening” criteria in one area.
Brokers have criticised the new rules for ushering in a culture of overzealous scrutiny among lenders that is restricting access to mortgage credit particularly for younger and first-time buyers, while others have hit out at unintended consequences that they say have caused detriment for some existing homeowners.
The CML said in its latest newsletter that a common theme among lenders was that while implementation had broadly gone according to plan, there had been some disruption to business as new systems were introduced and staff adjusted to new procedures.
Some commentators have speculated that business volumes at this stage could be around 5 per cent lower as a result of the transformation to the new rules, CML said, though it cautioned that it would not be able to see market effects until several months down the line.
The CML highlighted five challenges being faced by lenders ahead of the review:
1. Detailed evidence must be gathered
Lenders will need to present clear and detailed evidence of the effects of the new rules, especially in relation to unintended consequences and areas where they believe the new rules may need a tweak.
2. Lenders will need to show effect on borrowers
Lenders will also need to reflect on how borrowers react to the rules over time, for example reflecting frustration at switching processes which have become slower and more cumbersome.
3. Assessing compatibility in the internet age
Consumers will increasingly want to undertake all kinds of financial transactions electronically, and lenders should seek to assess how rules which place emphasis on interrogative sales processes work in this context.
4. Buy-to-let scrutiny
The industry must anticipate scrutiny of buy-to-let lending, not least from the Bank of England as it continues to review the use of its powers to intervene in housing and mortgage markets.
5. Potential changes in consumer behaviour
Lenders will also want to monitor the extent to which the MMR could trigger other potential changes in consumer behaviour, for example an increase in unsecured lending.
