New Mortgage Regulation Framework

by Mark Johnston

During 2007 the global financial systems were in a state of collapse and turmoil. In the UK mortgage borrowers and savers alike started to see the financial market going through massive changes and disruptions.

The Financial Service Authority (FSA) decided to address the issues highlighted and coming fro the economic crisis through a mortgage market review (MMR).

The purpose of the mortgage market review (MMR), according to the Financial Service Authority (FSA) is the ‘delivery of a mortgage market which is sustainable and works better for all participants’. It is intended to restore faith and confidence back in to the lending sector in particular.

Paul smee, director general of the Council of Mortgage Lenders (CML) said “lending needs to be responsible and done in such a way which protects consumers. Rules need to be practical and avoid unintended consequences”.

The Financial service Authority (FSA) has been working on its new regulatory framework, for the UK mortgage market, for over 2 years.

The long awaited and highly publicized mortgage market review (MMR) was published on the 19th of December 2011.

Lord Turner, chairman of the Financial Service Authority (FSA), said “we believe that these are ‘common sense’ proposals which serve the interest of both lenders and borrowers”.

This framework is likely to be made in to rules by the summer of 2012 and then introduced in the summer of 2013.

The final draft of the proposals are broadly welcomed as they are generally less prescriptive than the previous drafts, especially on assessing affordability and interest only mortgages.

The Council of Mortgage Lenders (CML) has described the latest proposals as ‘far more workable and appropriate’ than those contained in previous consultation papers. The Financial Service Authority (FSA) significantly amended the proposals following detailed feedback from lenders, consumer groups and other stake holders.

Many lenders however have already tightened up on their interest only mortgage criteria to match up to what they expected to be in the final proposals. The final set of proposals, however are less stringent than lenders original thought. Some experts believe it could therefore lead to lenders relaxing their criteria over the next 12 months.

The mortgage market review (MMR) has received mixed reviews in the press, with on particular paper claiming that ‘thousands of credit worthy people will be frozen out of the market by the new mortgage rules’.

The Legal and General mortgage club have stated that “at first read this seems to be a pragmatic set of proposals, with no major rule changes anticipated until 2013”.

Campbell Robb, chief executive of Shelter said of the framework, “we are pleased the FSA are committed to greater mortgage regulation including income checks and affordability tests, which are both much needed and long overdue”.

Stuart Gregory of Lenture mortgage consultancy stated “it is good to have more concrete proposals, but now is the time the FSA and lenders think about how they will promote these changes to the public and explain how it will affect them”.

In answer to this the Financial Service Authority (FSA) have stated that they intend to run road shows across the country to share views and promote as wide a discussion as possible about the mortgage market review (MMR).

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