FSCP: FSA must consider mortgage prisoners
These so-called prisoners already have a mortgage and more often than not can afford their monthly payments but under MMR proposals outlined last summer they would be unable to remortgage.
Bill Martin, a key member of the FSCP as well as being a senior research associate of the Centre for Business Research at the University of Cambridge, said: “We were disappointed with the cost benefit analysis which appeared in last year’s consultation paper. It’s a statutory requirement but more important than that is that the FSA uses comprehensive information so they can come to a rational way of balancing the interests of all those affected by the MMR.
“We don’t know what they’ll produce but it has to be an improvement on what went before in two respects. First, they did not estimate the impact on consumers who could have paid off their mortgage but who would have been constrained by the rules outlined last year.”
According to the FSA’s own analysis if the MMR had been in place since 2005 around 1.25 million people would have been either forced to scale back their mortgage or not get a mortgage at all.
Martin, who has also been a specialist adviser to the House of Commons Treasury Committee and visiting professor of London Guildhall University, added: “There’s no attempt in the cost benefit analysis to look at these consumers who are solvent but would be denied a mortgage. We think it’s important the new analysis should cover that particular aspect.”
The other area the panel is keen the FSA should revisit is the way affordability is assessed. Martin said the FSA did not have sufficient information on consumer expenditure, resulting in affordability being assessed by a “proxy” of people’s income minus all their expenditure after tax.
He said the panel is concerned this could lock buyers who could easily and willingly change their spending habits to afford a mortgage out of the market.
And he added: “I sympathise with the economists who used this proxy but we think the right way to go about this is to get the information on consumer expenditure, take your time and balance the interests of all those who would be harmed by a constraining set of rules.”
The panel said it understood the FSA was conducting a cost benefit analysis now that took into account these factors.