Regulation has been “swamping” the mortgage market in terms of volume and time spent on implementation and is one of the main reasons why there is a dearth of much needed product innovation, the Building Society Association’s Paul Broadhead told FTAdviser.
The industry has been witness to a raft of regulation in recent months, Mr Broadhead, the trade body’s head of mortgage policy, argued. This has included the Mortgage Market Review which was “the result of a long and torturous journey”.
Following on from this the European Mortgage Credit Directive is to be implemented in March 2016. Early in September, the government launched a consultation on incorporating new European regulations on mortgage lending into UK law.
Mr Broadhead said that the market is waiting for another consultation to be published by the Financial Conduct Authority on its plans on implementing the European Mortgage Credit Directive into the UK.
He said in light of all of the recent regulation: “The industry has been swamped by so much changing regulation recently and there is more on the horizon.
“Lenders have not had a chance to pause for breath really to think about innovations in the market and what kind of products we need coming out of the crisis to serve consumers needs. I think that has been a real challenge for them.
Mr Broadhead added: “I just think that the amount of regulation is taking up so much time... the compliance and all of that is fine once it’s in but it’s just the implementation of all these different regulations.”
Mr Broadhead identified that a ‘pot’ for discretionary spend had been missing in many companies in recent years, preventing the pace of product innovation needed to survive in the new world post-crisis.
“If I go back to when I was a mortgage lender a few years ago we always had two pots of money... one was called the non-discretionary funding pot and that was money that we had to spend on implementing regulation in order to keep the doors of the business open.
“The other part was the discretionary spend... that we would spend on product development, on innovation, on consumer research to understand what consumers changing needs were and how we could adapt as a business to help them or to develop products that would get them onto the housing ladder.
“Most of that non-discretionary spend has been absent from the industry in recent years so I don’t think we’ve seen the pace of innovation really that has been required throughout and post the crisis.”
Mr Broadhead’s views echoed those of the Association of Financial Planners earlier this week, which called on the Financial Conduct Authority to reduce regulatory barriers in order to improve innovation among the advice profession.
Chris Hannant, director general at Apfa, said the regulator needs to recognise the role it plays in creating the compliance driven, risk adverse environment which hinders innovation.
