MortgagesFeb 17 2015

Onerous regulation creating ‘state run’ mortgage market

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Onerous regulation creating ‘state run’ mortgage market

Excessive and onerous regulation is moving the UK towards a “state-regulated” mortgage market as rising costs and constraints disenfranchise swaths of consumers, the Intermediary Mortgage Lenders Association’s executive director Peter Williams has claimed.

Speaking to FTAdviser, he said that there has been little or no effort to integrate successive layers of regulation, or to understand the individual merits of the interventions.

Recent interventions have included the overhaul of distribution and tough new affordability rules under the Mortgage Market Review, new powers for the Bank of England to set limits on lending ratios, and new European legislation which will result in a further increase in the interest rate stress test bar and limited regulation of buy-to-let.

Advocates of the new rules point to the financial crisis and more recent rapid house price inflation as evidence of the need to curb mortgage market excess, while others suggest runaway areas of the market such as buy-to-let should be further curtailed to help ease pressure on new buyers.

Mr Williams said: “I think we all support proper definition of the boundaries around mortgage lending, but we’re becoming over-regulated and there’s a risk of tightening that boundary line more than was ever intended.”

He pointed out that the biggest losers from things like the MMR are consumers, with many individual accounts and reports suggesting more are being excluded by the more stringent ‘tick-box’ affordability checks being used by many major banks.

Mr Williams added that “shrinking the definition of who can get a mortgage is highly problematic” and pointed to a new campaign from the Ipswich targeting ‘mortgage misfits’ - those who fall outside most lenders’ affordability criteria - as a “good competitive response”.

Imla research earlier this month - carried out by Wriglesworth Research amongst 250 brokers - revealed that 84 per cent of brokers were unable to source a mortgage for at least one client during the past six months, up from 78 per cent who said the same thing in July last year.

Almost three-quarters of intermediaries believed the market had become more conservative, with two-thirds of lenders agreeing.

On the upside, Mr Williams noted that tighter regulations that put more people outside of ‘vanilla’ lending have meant more work for intermediaries.

“Less and less people are going direct for a mortgage, with improvements in technology meaning many will shop around online and complete the transaction with the additional advice and whole of market offering that a broker can bring.”

Nigel Stockton, financial services director at Countrywide, said that there is now little doubt that consumer sentiment believes that mortgages are more difficult to obtain following the implementation of MMR, adding that it is up to the industry to change that perception.

“It is not surprising to me in this environment that more consumers are turning to a broker, who has a wider choice of products and often more expertise, than any more narrow direct lender range.”

He did however, warn against anecdotal feedback about consumer exclusion, pointing out that Countrywide has just come off a year where overall mortgage lending was up over 20 per cent and written volumes increased year on year in each quarter.

“I understand what Peter Williams is saying when he states that the combined influence of the PRA and FCA is stifling innovation and increasing the affordability requirements for consumers, but I would counter that lenders are starting to get to grips with the changed environment.

“I would also argue that the competition from lenders and brokers alike means the market remains dynamic and changeable - not one you would associate with state-run markets.”

Ray Boulger, senior technical manager at mortgage broker John Charcol, said he completely agreed with Mr Williams’ position.

“The FCA is meant to be the consumer protection part of regulation but in practice the MMR results in poor outcomes for some borrowers, who are either denied the ability to borrow or can only do so at rates in excess of what is justified by the risk they pose to a lender.”

He added: “When it comes to a mortgage lenders are prevented by the regulator from taking a holistic view. This makes no sense.”

peter.walker@ft.com