Delay in Mortgage Reform

by Mark Johnston

With all the new regulations, new lending limits, new rules and guidance, new lenders and with a general increase in austerity it is no wonder that some borrowers are either becoming confused or overwhelmed.  There seems to be an increasing large sector of borrowers that seem so overwhelmed that they appear to be taking out very expensive mortgages for no apparent reason.

The European mortgage market is undergoing a regulatory overhaul and there is a distinct impression amongst industry experts that these reforms may very well conflict with the UK mortgage market changes. 

The Council of Mortgage Lenders (CML) has suggested that pursuing three separate regulatory initiatives in parallel may very well lead to potential conflicts.  The Financial Stability Board (FSB), European Commission (EC) and the Financial Services Authority (FSA) are all in the ring attempting to promote a cross boarder mortgage market.  The CML has said that they will support the principles of the FSB and the EC but it is open in its belief that the EC should not have much influence in cross boarder markets in the mortgage arena. 

A spokesperson for the CML advised that “Consumer expectations and demands for familiar types of credit, national systems of property valuation and registration, and differences in funding markets and mechanisms will not be addressed by the EC proposals.”  Going further and saying that “It is highly unlikely that a single market will emerge from the European initiative.”

This said, a panel of advisers has recently called for the long awaited and long anticipated overhaul of the mortgage rules to be delayed until a clearer picture of the housing market appears.  The Financial Services Panel has suggested and warned that that any action to improve the mortgage market could harm current borrowing and may stunt any future growth. The FSA panel said that what is needed now is “careful transition”.  “There is a danger that lenders will reject mortgages which they view as not complying with the MMR and so further restrict consumers’ options during a period of general lending restraint,” it said.

“To avert this danger, implementation of new affordability rules should be delayed until the housing market has demonstrably recovered.”

Last year, the bank carried out more checks on borrowers and their respective incomes and imposed tougher tests on affordability which came under fire for being too prescriptive and could reduce the flow of credit.

By July, the FSA should have carried out further consultation and may be in a position to lay out new regulation and said that it was “optimistic that the final proposals will be more balanced”.

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