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Guide to Mortgage Market ReviewImpact of MMR on the mortgage market
With government stimulants such as Funding for Lending (which will cease to be available for mortgage lending from January 2014), the current phase one of the Help to Buy scheme and the second phase in 2014, the market is finally moving in a positive direction.
Martin Reynolds, chief executive of SimplyBiz Mortgages, acknowledges the pick in mortgage activity in recent months, though he adds there may be a “minimal” realignment or drop in business volumes around April 2014 implementation.
Mr Reynolds says we may, however, see an increase in relation to the percentage of mortgages sold via an intermediary rather than through a lender’s retail channels.
Under the Mortgage Market Review, Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says there will be a greater focus for lenders on ‘knowing your broker’.
Mr Sinclair says advisers should expect to see stronger panel management and that lenders may increase intermediary distribution as they take time to adapt to the changes.
Mr Sinclair says in the short term the MMR is likely to produce more business via intermediaries and longer interview times for consumers, together with more detailed information requests. He warns this might also lead to it taking longer to get an offer.
Taken together with the FCA’s overall more interventionist approach, Laurence Baxter, head of policy and research at the Chartered Insurance Institute, says the mortgage market will clearly be more tightly regulated than ever before.
The FCA’s first Financial Risk Outlook and Business Plan published in March of this year highlighted time and again the regulator’s intended new approach to its role, all of which Mr Baxter says will affect the diverse mortgage market.
Mr Baxter says: “Those operating in any retail market can expect to see a more proactive and interventionist regulator.
“The regulator has reiterated in several places the benefits to firms of adopting a customer-centric approach in their corporate culture that includes positive selling practices, a positive approach to improving the customer’s situation and not taking advantage of consumer psychology heuristics and biases.”
One of the highlighted issues is professional standards, which Mr Baxter says under the MMR changes will correctly apply to not just advisers but all staff who sell mortgages.
Importantly he says there is now clarity for both lenders and advisers and the new requirements requiring advice to be given in all cases where new money is advanced - and the requirement that lenders undertake a thorough assessment of affordability should ensure borrowers are less likely to have difficulties meeting their commitments.
Mr Baxter says the requirement for all staff selling mortgages to be professionally qualified will lead to greater consumer confidence in the buying process. He says this is important because those involved in the selling process or making decisions about the sale should be appropriately trained.
Mr Baxter says the only thing missing from this is the need for practitioners to behave ethically and to keep their knowledge up-to-date with ongoing CPD. While the FCA does not mandate an amount of CPD that must be completed annually, members of the CII are required to commit to the same CPD requirements - 35 hours of study, 21 of which being ‘structured’ - as retail investment advisers.
The CII is also concerned that the industry now has only 30 months to create a meaningful professional advisory market for niche products such as sale-and rent-back and right-to-buy, Mr Baxter adds.
If the public must receive advice in these potentially complex situations, Mr Baxter says they must be able to turn to an adviser market that is professionally trained and equipped.
Moving beyond professionalism, Mr Baxter says sensible steps seem present in other areas, highlighting in particular the move away from relying on written disclosure material.
“While comparable written summary material is important in helping customers to shop around, the previous rules took this too far.
“Behavioural economics tells us that customers do not approach financial services decisions in the manner that such detailed disclosure material supposes, and instead an overload of information for customers also presents a hefty compliance burden for firms.”
