Mortgages  

FCA to revise MMR ‘stress test’ rule

The Financial Conduct Authority is set to revise its Mortgage Market Review rule relating to lenders ‘stress testing’ of interest rates to ensure affordability, following a recommendation from the Financial Policy Committee.

Following its latest meeting the committee, which is the macroprudential regulator that forms part of the new triumvirate of bodies alongside the FCA and the Prudential Regulation Authority, advised that lenders should have to heed any recommendations it makes regarding future interest rates in relation to setting of mortgage rates for borrowers.

Under the current draft of MMR rules, lenders are required to ‘stress test’ mortgage rates to ensure that future changes in base rate will not compromise mortgage affordability for borrowers.

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However, the committee is concerned that not enough focus is placed on affordability for banks themselves and therefore that there is a risk to financial stability.

According to minutes of the FPC meeting held on 20 November, the Committee decided recommending this new FCA requirement for mortgage lenders will not have a negative influence on the regulator’s operational objectives and will not affect the United Kingdom’s international obligations.

The committee said it will also in future monitor the affordability tests that lenders undertake to ensure they are robust.

Martin Wheatley, FCA chief executive, noted during the meeting that the change will require it to consult with the sector again and to conduct a cost/benefit analysis, meaning it would not be able to implemented in time to meet the MMR implementation date of April 2014.

Mr Wheatley indicated it would be possible to amend the rule so that it came into effect shortly after implementation of the MMR.