Not following EU rules could benefit the market
Bob Hunt (pictured) is chief executive of Paradigm Mortgage Services
In the months to come there will be many attempts to guess what Brexit means for the UK economy as a whole, and specifically for us, the mortgage industry.
In particular, I suspect there will be many who believe the UK’s leaving of the EU will mean something of a ‘toning down’ of the regulation surrounding the market, after all – the argument will go – many of our rules and laws come via EU Directives rather than ‘home grown’ measures.
Clearly, judging by recent comments from the chair of the FCA, Charles Randall, the regulator does not want such a view to become the prevailing one. Quite the opposite it would seem given that Randall talked about Brexit not precipitating a ‘race to the bottom in regulatory standards’.
Indeed, Randall seemed keen to suggest that regulation would be improved and, dare I say it, ratcheted up. We have known for some time that the FCA sees itself as the leading regulator in the world and, as Randall puts it, wants “to continue to influence global standards of financial regulation”.
That, to me, suggests the FCA may not take too kindly to the kind of Brexit view that sees the UK leaving the EU as an opportunity to pull back and repeal regulation that has been introduced, specifically over the past decade.
Of course, in the short-term nothing is likely to change anyway as all EU law is moved into UK law, albeit with the opportunity to change the rules and regulations that the financial services industry has to follow because it comes from a European source.
At what pace any changes might follow is anyone’s guess but, even if you are a fervent Remainer, there could be some mortgage market areas which might benefit from our not being subject to EU law.
At the recent FSE London exhibition, a discussion took place around the importance of protection advice and sales, and whether the ‘protection gap’ could be bridged if more lenders, for instance, insisted on a degree of protection cover in order for a borrower to secure the mortgage.
Robert Sinclair of AMI pointed out that any sort of ‘bundled product’ proposition currently fell foul of EU law, which is why lenders were currently not involved in such a move, however he felt that Brexit could precipitate a move away from such regulation, allowing lenders to deliver this type of mortgage/protection hybrid that could perhaps make it easier for advisers to have the protection conversation, especially if it is at the insistence of the lender.
There’s also been much talk recently about the position of so-called ‘mortgage prisoners’ and how they are not able to move off their current rates because they do not meet the more stringent affordability criteria brought in, for example, by the Mortgage Credit Directive. This despite never having missed a mortgage payment and despite them wanting to move to a lower rate which would actually make their monthly payment that much lower.
The fact that this is the case seems completely counter-intuitive and I’m sure all advisers reading this have come across cases where they couldn’t move a client to a cheaper rate because of this problem.
Support for ‘mortgage prisoners’ is ramping up with lenders communicating with them, pointing them in the direction of advisers, and hopefully seeing them through to a positive conclusion, but at the heart of this issue is the affordability criteria that lenders have had to adopt.
Again, if the UK financial service industry is no longer beholden to these EU-based rules, there could be scope to take a more lenient line on affordability, specifically for those ‘prisoners’ who are a) not borrowing any more, and b) can show a strong history of repayment.
These are just two examples where a more tailored approach to UK-specific issues could be beneficial in a post-Brexit environment, however – given the recent comments from Randall – if you were anticipating a ‘bonfire of the regulations’ from the end of March 2019, then you’re likely to be disappointed.
Our sector – quite rightly – will remain heavily regulated but perhaps with the opportunity for a number of smaller tweaks which could help those currently sidelined by the current rules.