The stark remarks by Matthew Wyles, chairman of the Council of Mortgage Lenders, indicates a gulf between the Financial Services Authority in the UK and lenders as he voiced concerns that new regulations could end up ‘completely asphyxiating the industry, layering in extra cost and time delays to mortgage applications, and frustrating and angering perfectly sensible consumers in the process and that getting a mortgage is going to get slower and more expensive.
As the CML represents around 98% of the UK residential mortgage lending industry, what its chairman has to say will have considerable weight.
It also may indicate a battle ahead as the FSA sets out to introduce tighter regulation in the market.
Speaking at the CML conference he voiced concern that the FSA is in danger of putting too much emphasis on ‘irrational behaviour’ and he raised the issue of too much political influence.
‘The way I see it is that most consumers, if we strip out the fraudsters and the feckless, want mostly what their lender wants.
They want relatively straightforward access to the finance that will enable them to buy property.
They want to be able to afford their borrowings, and borrow on terms that fit their circumstances.
They want a good deal that doesn’t tie them in too inflexibly. And they want mechanisms to put things right if things go wrong,’ said Wyles.
He said that is what the UK mortgage market offered in the decade before the financial crisis.
But since then there has been ‘most definitely a backward step in terms of giving consumers both what they want and what they need’.
Wyles warned that the FSA is in danger of creating a system that outlaws many borrowers, most of whom have never been behind in their payments.
‘In our view the main purpose of regulation should be to ensure a sustainable risk management framework for financial businesses, and a sensible operating framework between businesses and their customers.
It should not attempt to wrap consumers in cotton wool and make borrowing risk-free.
That is not the nature of lending, and it is not the nature of borrowing,’ he told the conference.
He declared that ‘arrears do not automatically equal detriment’ and that ‘there is a big risk that some of the mooted reform will have the effect of failing to deliver to lenders, or the regulators themselves, what they want or need.
There are several pressing issues that the FSA needs to think very hard about before finalising its proposals’.
One is the detail of the income verification and the affordability checking that it has proposed.
‘Self-cert may have had its day if the FSA gets its way but some consumers will be worse off as a result.
Change is necessary, but plenty of self-cert borrowers are complicated rather than dishonest, and it is simply wrong to see all self cert as liar loans.
A less blunt approach than an outright ban could still be adopted,’ said Wyles.
He indicated that the CML does not agree with the FSA’s ‘very onerous income verification requirements’.
He declared; ‘Quite apart from the really big ticket items, it seems we’re not even going to be allowed to rely on the borrower’s assessment of what they spend on food, booze and fags. But the feasibility tests we’re going to have to apply sound pretty clunky and costly for consumers’.
He added that transitional problems that will arise from FSA rule changes.
‘For borrowers already in the mortgage market, who may be paying their mortgages perfectly well but whose combined risk factors look high, the ability to get a new mortgage will be significantly reduced in the future,’ he said.
‘There will be a group of existing borrowers who will be prevented from taking out a new mortgage with a different lender, or possibly even with their existing lender, in the future.
The FSA doesn’t seem to mind if these people drop out of the mortgage market,’ he added.
‘Building societies, in particular, face a future of oppressive regulation compared with other lenders.
It’s another example of well-intentioned regulation bringing potentially detrimental side-effects, and there is a big need for the FSA to ensure that the level playing field is truly level for all lenders in the future.
We hope the FSA will pause for thought, and again not rush in to rules that could have serious unintended consequences,’ he concluded.
