After several years of consultations, panic by various areas of the market and the odd debate here and there, the Financial Services Authority (FSA) have issued their final policy rules following their Mortgage Market Review (MMR).
Some might argue this is badly timed with the market still in dire retraction from the crashes of 07/08 and no real recovery since then. But at the same time these rulings are needed to ensure that the same issues cannot happen again, once we get back to some normality in the lending arena.
With many consultation papers previously issued to the market for responses, the final policy rulings are not of much surprise and we must not forget, are to ensure the best interest of the end consumer.
I thought I would try and highlight a few of the rulings that caught my eye and which must be adhered to (mostly from April 2014):
– Anyone selling mortgages must hold the relevant mortgage qualifications
– Firms must act ‘in the customers best interests’
– Lenders are to be responsible for customer’s affordability and for verifying customer’s income.
– All ‘interactive sales’, those completed face to face or over the phone, are to be treated as ‘advised sales’. So, whoever sells the product is deemed responsible, whether it be your bank, broker or other suitably qualified individual.
– Stress testing must be carried out for future rate increases. If you cannot afford an increase in rate, you are unlikely to be given that current product.
– Interest only survives, but only for customers who present a credible repayment vehicle.
– Concessionary rates offered by lenders cannot be removed because of payment problems.
These are just a few cherry picked from the 300+ pages of the MMR and I’m glad we have near 18 months to review, digest and act upon the rest!
With an estimated cost in the region of £70m to implement the changes, this is not a cheap exercise, but the cost of market failures has obviously been substantially more, so anything that will prevent such issues happening again must be welcomed.
Many lenders have already restricted lending policies and reduced exposures to higher risk products, so the real issues will revolve around how Banks and other lenders handle the ‘advised sale’ requirements. We shall have to wait and see. In the meantime, this is already in action at your local independent and whole of market mortgage brokerages….!