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AMI: FCA must redo MMR cost benefit

The chief executive of the Association of Mortgage Intermediaries issued a direct challenge to the MMR’s author and former mortgage sector manager at the Financial Conduct Authority Lynda Blackwell during the HSBC Great Housing Market Debate yesterday.

He said: “I would ask the FCA to go back and redo the FSA’s original cost benefit analysis against the affordability criteria the market is now applying.

“Because the people who are being excluded from this market is not the 4% to 5% that the Financial Services Authority said would be the case under MMR.

“The intermediary and broker community know it is considerably more than that – somewhere between 25% and 40% would be excluded under MMR if they came to market and had the confidence to ask for a mortgage.

“Many millions of mortgage customers are afraid even to ask if they can get the mortgage that they currently have from another lender.”

Sinclair said that lender behaviour shifted dramatically in 2009 following comments from then FSA chairman Lord Adair Turner.

He added: “It was the statements he made that changed the market and the first MMR discussion papers that drove lenders into fear.

“We had a cost benefit analysis based on the Financial Services Authority’s interpretation of where affordability would land and with lenders taking an entirely different view of what that affordability is.”

Blackwell declined to respond to Sinclair’s challenge directly but said: “The MMR was designed to bite once the market comes back and frankly the market hasn’t come back yet so we haven’t really seen how its impact will affect the market.

“What we saw was a voluntary tightening of criteria on the part of lenders because their appetite changed fairly dramatically.

“We recognise that the difference between the really poor lending standards in the run up to the crisis and the tighter lending standards post-crisis has meant that there are a lot of people who will seriously struggle to get a mortgage.

“That’s why we put the transitional rules in place – to help interest-only borrowers and others.”

Ray Boulger, senior technical director at John Charcol, said: “The MMR obviously hasn’t hurt all consumers but it’s quite clear that some consumers who can easily afford a mortgage are struggling – older borrowers in particular.

“There are some borrowers at the margin who are finding it unnecessarily difficult as a result of MMR in my view. Even when they can get a loan, they are having to pay over the odds.”

In 2012 the Financial Services Consumer Panel commissioned two independent peer reviews by economist Jon Stern and Europe Economics to interrogate the FSA’s analysis.

Both found major flaws in the former regulator’s approach and concluded the cost benefit analysis could not be called robust because it relied over-heavily on data from 2009 and 2010 when there was huge market volatility.

The Europe Economics review said: “The well-being analysis fails to be adequate, even in its own terms, in a key respect – namely that it does not involve a proper counterfactual evolution analysis. It does not consider how the world might change even in the absence of the regulation.”

It comes as research from the Nottingham building society claimed one in six homeowners are considering remortgaging over the next six months to take advantage of rock bottom rates.


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