FSCP: More borrower responsibility a regressive step

Sarah Davidson

June 1, 2011

Adam Phillips, the FSCP chair, said passing any more of the lender’s risk to the consumer would be detrimental and should not be enshrined into the Financial Services Authority’s Mortgage Market Review.

He said: “Requiring the lender to do due diligence seems to be reasonable. To require the customer to answer honestly the questions they are asked also seems reasonable. That requires responsible behaviour by the customer. But to pass any more of the lender’s risk back to the customer, we think is a regressive step.

“I hesitate to mention the debtors’ prisons of the eighteenth century but you can see where we might get headed to.”

Kay Blair, vice chair of the FSCP, said: “We would always encourage borrowers to be responsible. But I think lenders have a duty of care to make sure that they have carried out an effective assessment of the borrower and they are convinced there is an appropriate mortgage in place.

“I think in this industry, financial services are quite keen to encourage borrowers and consumers to take much more responsibility and we think that consumers already have a responsibility to answer honestly and appropriately to disclose all their information to the lender. We already think under law consumers do have to act responsibly.”

But the Council of Mortgage Lenders has argued in the past that there is not enough emphasis on responsible borrowing in the MMR.

It said: “The FSA’s proposals also place a high degree of responsibility on lenders for making sure that borrowers are only able to take out mortgages that are suitable for them. But, while acknowledging the arguments in support of this, we also believe it is important for consumers to make responsible choices and decisions when considering whether to take out a mortgage.”

The regulator believes its proposed approach to income verification encourages consumers to think more carefully.

But the CML said: “Just as some customers may not have used product information in the key facts illustration before deciding to borrow, we do not believe that verifying income will itself discourage some borrowers from over-committing themselves.

“Income verification is very specific to the decision to take out a mortgage and does not preclude other forms of “irrational” over-borrowing, for example on credit cards.”

The CML also said making lenders take all the responsibility for awarding a mortgage could lock viable borrowers out of the market.

It said: “The FSA’s solution is to make lenders responsible instead. A potential unintended consequence of this is that customers who may be making rational borrowing decisions – and can afford their loan – may not get a mortgage because the lender will not accept a risk that the borrower could over-commit themselves.

“Those most affected are likely to be would-be first-time buyers, whose aspiration to become a home-owner may be hit by the FSA’s risk-averse approach.”

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