The Financial Conduct Authority (FCA) has given its view of the mortgage market following the implantation of the Mortgage Market Review (MMR) on the 26th April this year.
Speaking at yesterday’s Financial Services Expo, Lynda Blackwell, part of the mortgages and mutuals team at the regulator, gave an overview of how the MMR had landed and its views on how lenders were coping.
Blackwell said: “Overall things seem to have gone as the market expected. There have been some IT glitches with some firms faring much better than others. The world has kept turning. Some lenders have clearly attracted press comment about the questions they are asking regarding affordability. [However] we wouldn’t have expected very much to change when it comes to lenders’ underwriting practices. Things [the MMR rules] haven’t really changed that much.”
Blackwell focused particularly on ‘common sense’ underwriting suggesting that some lenders appeared to be going far beyond what was required of them by the new rules. She highlighted the three expenditure areas lenders should include in their detailed look at borrowers’ affordability – contractual payments, basic essentials and basic quality of living costs – however said that beyond this “it’s entirely up to the lender what they ask the borrower about their expenditure”.
She added: “It would be good to see common sense prevailing in the market and I’m sure it will do. We look at some of the questions being asked and wonder why?”
Blackwell highlighted a number of key areas where the FCA would like to see a ‘common sense’ approach including product switching where lenders did not keep borrowers on more expensive SVR rates when they could be moved to a cheaper fixed rate. She commented: “It’s too easy to take advantage of your existing back book. Existing borrowers should not be unfairly prejudiced just because they are trapped. We would like lenders to follow the spirit of the rules but it’s difficult to do anything if they don’t.”
On lending into retirement, she said: “There is nothing in the MMR which prevents lending into retirement providing the customer can prove affordability.”
She suggested that lenders were putting a cut-off on the maximum age of a borrower at 75 years old because “[they] often have very automated systems and it’s easier to put in age 75 which sets a line in the sand rather than underwriting a case”. Blackwell also suggested there was a growing need for product innovation in the lending into retirement space that would bridge the gap between the end of the residential mortgage term and products such as equity release.
Blackwell also highlighted the FCA’s concerns about lenders, particularly those outside the top six, moving into potentially higher risk sectors. She suggested MMR might mean ‘smaller lenders’ increasingly look for more ‘innovative product’ areas to compete in. This might in turn put pressure on them to potentially circumvent the MMR requirements, to look at non-residential lending areas such as bridging or secured loans, or to extend credit to less credit-worthy customers.
In highlighting the next key mortgage-related areas the FCA would be looking at, she outlined a project which would not just look at the borrower’s mortgage commitments but their entire use of credit. She said: “We have an opportunity to review and assess the way consumers use credit – all types not just the mortgage but other secured lending and credit cards.”
She expressly outlined the FCA’s concern that a borrower is able to secure a mortgage, passing all the affordability checks, however the next day after gaining the finance they can also take out credit cards, second-charges and other types of credit that “increase the debt levels massively and the mortgage implodes”.