The Financial Conduct Authority (FCA) has said the mortgage market appears to have ‘filled its boots’ on sales of mortgages that did not have any income verification of the borrower, prior to the introduction of the Mortgage Market Review (MMR) earlier this year.
As of 26 April, the new MMR rules require that income must be verified in every single case and the FCA effectively outlawed both self-certification and fast-track mortgages.
However, Lynda Blackwell of the FCA, in her keynote address at FSE London on Wednesday said the latest product sales data for Quarter 2 this year reveals a notable spike in the sale of these products prior to MMR.
Blackwell said: “Just ahead of the MMR coming into force we saw an increase in the number of mortgages where income wasn’t verified with 20% of mortgage sales in Q2, that’s around 50,000 mortgages being sold without income being verified. Up from 16% in Q1. So it looks as if there was a bit of filling of the boots going on before everything was switched off.”
She also stressed that if fast-track mortgages were still available there would be “a real risk” they would be used for ‘gaming the income verification rules”.
In terms of the overall impact MMR has had on the mortgage market, Blackwell said it was still too early to see any clear trends, however the market appeared to be continuing to grow and, compared to eight-year average lending levels, the picture was positive.
She added: “[It’s] still very early days. We do have Q2 product sales data… and in that data we’re still seeing the pre-MMR pipeline cases wash through and the market is clearly still adjusting and things are still settling down. It’s probably going to take at least six months before we have clear water and we can have a real good view on the impact of the MMR.”
Blackwell also outlined how the remortgage market had taken perhaps the biggest hit of all sectors, particularly since the Credit Crunch: “It’s clear to everyone that remortgaging to fund consumption and consolidate debt has proved to be the unsustainable sector in the mortgage market and while we would expect to see it come back a bit, as interest rates start to rise, it’s unlikely to come back to the levels we saw pre-crisis.”
The positive news for the intermediary sector was the growth in business levels over the past 12-18 months. Blackwell outlined how there had been a move to intermediated sales across the entire mortgage sector, particularly since the end of 2013.
Finally, Blackwell stressed the regulator was concerned that some lenders were not making use of the MMR transition arrangements which allowed them to move ‘trapped borrowers’ onto lower-rates without the need for the new affordability measures to be completed. She said the FCA was pressing home the point that lenders needed to treat their customers fairly and they could use the transitional arrangements to help out their customers, however they could not compel the lenders to lend.
