Industry backs regulator's direction while calling for gaps to be addressed in final rules
The Association of Mortgage Intermediaries (AMI) and the Intermediary Mortgage Lenders Association (IMLA) have both responded to the Financial Conduct Authority's consultation on its Mortgage Rule Review, CP26/18, broadly welcoming the direction of the proposals while setting out conditions they consider essential to effective implementation.
AMI described the FCA's plans as targeted and proportionate — a recalibration of risk appetite rather than a return to pre-crisis lending practices. The trade body said the proposals have the potential to broaden home ownership and bring creditworthy borrowers back into the market, provided advice sits at their centre.
On repayment structures, AMI welcomed the FCA's position that interest-only lending is appropriate only for borrowers with credible strategies for repaying capital, though it identified part-and-part mortgages as a more balanced and sustainable option for many consumers. The association also called for lenders to signpost customers towards advice when executing interest-only product transfers.
The association identified four areas requiring clarification before the proposals can be adopted with confidence: a clear definition of "tailored interactive dialogue", which previously carried specific regulatory meaning; an explicit statement in the final rules that point-of-sale assessments of follow-on repayment strategies are valid; better prompts for consumers to review repayment strategies at key intervals such as the end of fixed-rate periods; and a full cost-benefit analysis of non-monthly payment structures, given that credit reference reporting operates on monthly cycles.
"We share the FCA's ambition and have been working with the regulator, consulting with our trade body counterparts and seeking insight from our members to inform our response to these proposals, many of which we deem to be sensible and proportionate for the creditworthy consumers the current rules inadvertently exclude," said Stephanie Charman (pictured right), chief executive of the Association of Mortgage Intermediaries.
"But these proposals will only work if lenders and advisers adopt and implement them, otherwise they will fail in their aim to improve access to the market for more first-time buyers. It is important that the areas highlighted by AMI are addressed by the FCA through the final rules and guidance, to ensure firms have the clarity and confidence needed to adopt the proposals effectively."
Charman added that advisers require assurance that decisions made in good faith today will not face retrospective scrutiny years hence.
"That is also why the FCA must clearly define tailored interactive dialogue, with practical examples, to give advisers confidence and limit liability," she said. "Advisers also need confirmation that a reasonable assessment made in good faith today won't be second-guessed decades from now."
IMLA similarly welcomed the FCA's consultation, drawing particular attention to the permissive rather than mandatory nature of many proposals, which leave individual lenders to determine their own approach in line with risk appetite and operational capacity.
On interest-only, IMLA agreed such products can help first-time buyers with affordability constraints, while cautioning against borrowers remaining on interest-only terms for extended periods without accumulating equity. It also suggested lenders may need to review the credibility of repayment strategies more frequently than existing rules currently require.
IMLA raised concerns about proposals to accommodate irregular mortgage payment intervals, warning that changes could have material consequences for arrears definitions and credit records unless applied consistently across all lenders. The association said the issue requires further consultation with credit reference agencies and other relevant parties.
"The FCA is asking the right question: are our mortgage rules more restrictive than they need to be? Recent relaxations have been sensible, and there is scope to go further, but nobody, least of all lenders, wants to return to the days of over-exuberant borrowing and lending," said Kate Davies (pictured right), executive director at the Intermediary Mortgage Lenders Association.
"Our message to borrowers, particularly first-time buyers weighing up options such as interest-only, is simple: speak to a mortgage adviser. Many people assume they cannot get a mortgage when in reality they may be closer than they think."
Davies also cautioned against placing excessive weight on regulatory reform as a solution to affordability challenges, calling for a replacement of Help to Buy and a review of Stamp Duty.
"For decades the UK has failed to build enough homes, and no amount of product innovation can compensate for that," she said. "We would strongly support a well-designed successor to Help to Buy – one which increases the supply of smaller homes for first-time buyers and downsizers, avoids inflating house prices, and extends to second-hand properties as well as new-build – alongside a detailed review of Stamp Duty to encourage downsizing and get a sluggish market moving again."
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