This week has seen the publication of the much anticipated Mortgage Market Review, with the FSA setting out its proposals on changes it wants to bring about in the mortgage arena.
Key requirements include: lenders must verify income and be able to demonstrate that the mortgage is affordable; and they must also take account of future interest rate increases and how this may impact on borrowers. Mortgages must be assessed on a capital and interest repayment basis; lenders cannot accept speculative repayment strategies, such as reliance on increased property prices.
Lenders will be allowed to waive affordability rules for new mortgage contracts, provided the borrower has a good repayment history. Intermediaries will not have to assess affordability but will be required to determine whether the consumer meets the lender’s expected eligibility criteria.
Non-advised sales will be banned. This measure in particular will be seen by intermediaries as levelling the playing field, as currently many bank and or building society customers receive a level of service termed ‘information only’ when engaging directly with these organisations but in many instances believe they are receiving ‘advice’ when in fact they are not.
Consumers such as high-net worth individuals will be allowed to opt out of receiving advice and purchase on an execution-only basis.
The trigger points for presentation of the KFI will change, reducing information overload for consumers. A KFI need now only be provided when a recommendation is given, whereas formerly, rules required a KFI to be provided each time a consumer received information about a product specific to the amount they wished to borrow.
The current Initial Disclosure Document (IDD) will be removed, with a requirement for firms to disclose ‘key messages’ to the consumer, and these would include any limitations to their service in the form of products.
A number of former proposals that the FSA were advocating have been dropped from the latest document and this change of direction we believe will in general be welcomed by the intermediary and lender community.
This change in requirements suggests a more realistic and pragmatic approach by the regulator in delivering its objectives of a more stable and sustainable mortgage market.
The industry now has a period in which it can consider the proposals and make its responses to the consultative paper before the implementation of the proposed changes which are likely to take effect during 2013.
Brian Murphy is Head of Lending at Mortgage Advice Bureau
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