Christopher Woolard, director of strategy and competition at the Financial Conduct Authority, kicked off the regulator’s Mortgage Conference in Westminster today (7 September) by raising concerns about the equity release market and the way lenders interpret rules.
He said it was clear much has been accomplished by the Mortgage Market Review.
Mr Woolard said there was no doubt there were key differences between 2015 and the unsustainable lending levels of 2007.
The first big difference, according to Mr Woolard, is what appears to be a shift in the risk appetite of industry.
The second comes in the form of regulation, which he said has involved stricter international and domestic capital and conduct requirements including the introduction in the UK last year of the FCA’s Mortgage Market Review, as well as work by the Bank of England and the Financial Policy Committee.
Mr Woolard said: “That some questioned whether the impact of those interventions might lead to a drying-up of the market is a matter of public record.
“The MMR alone was predicted to affect mortgage approvals by anything up to 20 per cent.
“Looking back now, it is difficult to square those forecasts with actual market activity.
“Particularly when you assess the number of mortgage approvals post-MMR versus pre (43 per cent against 41 per cent).
“But there is clearly a question here as to what the ideal level of activity is and how you achieve it.
“No-one, frankly, wants to return to the unaffordable lending practices of the past, where almost every application was approved.
“And this is likely to mean (among other things) that assessments of mortgage applicants’ circumstances will continue to require more care than they did pre-crisis.”
Mr Woolard said the regulator has to remain sensitive to the impact of these reforms over the long run and keep focussed on outcomes and whether the market is working well.
He said: “Even if we believe our rules are proportionate, we need to remain alert to how firms are interpreting them and the effect on consumers.”
According to Mr Woolard, the UK’s ageing population is also on the regulator’s agenda.
Globally, he said the forecast is for a 244 per cent increase in the number of over 85s in the next 35 years.
Couple it with wider issues in the mortgage market, including affordability, and Mr Woolard said we quickly run into a number of important issues.
For example, an older population that is increasingly asset-rich, but cash-poor.
To address that challenge Mr Woolard said you could unlock the value of your home but “in the not too distant past, equity release became a dirty word.”
He said: “While we have seen a combination of regulation and industry-led initiatives to help clean up the market, some will argue that the costs of equity release, both up front and compounded over time, are relatively high for the individual, and that the previous image has stuck.
“It is clear that the UK and EU equity release markets are relative minnows.