Kate Davies: FCA should revisit old draft legislation

Michael Lloyd

September 10, 2019

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The Financial Conduct Authority (FCA) should revisit old draft legislation to help mortgage prisoners, Kate Davies, executive director at The Intermediary Mortgage Lenders Association (IMLA) has argued.

Davies said: “The FCA has acknowledged that new lenders cannot help some because they’re too toxic in terms of affordability or credit history, but you can do more to protect them once they are in that situation.

“There was draft legislation to do so years ago but that was abandoned in 2013 because at the time it was concluded the degree of detriment was not high enough to justify intervention.

“If the FCA is now saying detriment is high enough now why reinvent the wheel? Why not go back to that draft legislation, dust it off and introduce it?

“That would effectively put more onus on the owner of the mortgage, regulated or not, to do the right thing and treat people fairly. That would make more sense, to expand the regulated scope and look at it that end.

“If you don’t do that, you’re just going to repeat the same problem in the future. You might rescue this generation of trapped borrowers but the next time there is another securitisation with books out you have the same problem.”

Robert Sinclair, chief executive at the Association of Mortgage Intermediaries (AMI) highlighted that the proposals to change the affordability rules for remortgages, are a series of changes and shouldn’t be taken in isolation.

He said that changes to the affordability and advice rules mean some firms could operate in a different environment.

Sinclair added: “The changes mean at a limited time it might be possible to set up another set of affordability calculations which as a skilled lender, you could only use in a static or falling interest rate market. This is a regulatory solution.

“It leaves us a situation where lenders consider whether they move to the amended affordability model or stay on the existing more aggressive one. That appears from the way the consultation is drafted to be a period decision.

“You are either doing your remortgage business on that new simpler structure or on the MMR structure. That’s quite an aggressive move and gives the intermediary world an interesting challenge of knowing which lenders are playing on what landscape.

“That is unreasonable to impose that on an industry at this point in the curve. By combining this with the ability to do execution-only and change the term in order to reduce the affordability, the risk to consumer detriment is increased.

“It would need a very aggressive lender to take place, but some wanting to look for volume very quickly might.”

Craig Calder, director, mortgage products, Barclays argued that when the transitional rules were created, very few lenders took them on.

He said: “It was so complicated to work out, what lenders were you going to accept transitional arrangements from?

“How would you process it, source it and how would an intermediary know what lender accepts them? It was just too hard and because this is open to interpretation rather than clear guidelines, as a lender you have to air on the side of caution to be on the right side of compliance.”

Ray Boulger, senior technical manager at John Charcol, believed the current PRA and MPC guidelines of no lending above 15% four and a half times income are creating unintended consequences.

He suggested that if one was to make the rules more flexible, most lenders are up against the 15% limit so that shouldn’t be a problem.

Boulger said: “But in buy-to-let, quite a lot of lenders have made use of the fact that for fixed rates of five years or more they can choose what affordability they use. In the residential market very few lenders are making use of that flexibility.

“A couple of lenders have launched 15-year fixes, so there is clearly some logic in trying to offer some longer-term fixed rates and if you were offering long-term fixed rate mortgages you do not need to stress it all.

“That is where there could be interesting dynamics in the future. But they’ll have to sort out the ERC problem. Excessive ERCs won’t sell.”

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