Mortgage regulation would hurt consumers

AMI argues this will unnecessarily restrict consumer access to the housing market. AMI believes that the ultimate responsibility for a lending decision must rest with the lender, and that on-going affordability cannot be regulated. Long-term affordability is down to a borrower’s behaviour and changing personal circumstances.

AMI also argues that mortgage intermediaries play a vital role in helping consumers decide what they can afford, which mortgage is appropriate, and in this they should be supported by the industry and the regulator.

The comments are made in ‘Better Regulation for the Mortgage Market’, the second paper to be released by AMI in the run up to the publication of FSA’s Mortgage Market Review, expected in mid October.

Robert Sinclair, AMI Director, said: "The regulatory structure needs to balance the need to protect consumers from unaffordable debt with their desire to buy a home of their own.

“Product regulation risks strangling innovation and competition. Prescriptive Loan-to-Value controls will prevent vulnerable consumers from moving to more affordable mortgage deals when they seek to remortgage. And Loan-to-Income restrictions will penalise the careful consumer not the frivolous borrower. There are sufficient existing regulatory tools in place to deal with such market issues. And niche products such as self certification, remain appropriate for some borrowers and should not be completely driven out of the market.

“We are concerned that the high profile failures in other countries, sectors, and of some business models, will force FSA to act. It is essential that regulatory interventions are both well timed and reflect a full understanding of their long-term impact on the market. Few things undermine market confidence faster than regulatory change driven by the winds of political expediency. We recommend that regulatory policy maintains its previous course and direction.”

The report also argues that:

• Arrears and repossessions tend to occur due to changes in personal circumstances. As such they are not a direct indication of “suitability” or "affordability”

• Consumers want and need advice. AMI is concerned that many customers complete non-advised interviews with direct sales forces under the mistaken belief they have had advice

• Consumers are comfortable with the remuneration models in the mortgage market and any restrictions on procuration fees could produce undesirable outcomes

• A clearer distinction is required between those offering unbiased advice and those selling a product. The disclosure regime needs to ensure consumers are aware of the limits of what a firm is offering

• Individual registration of intermediaries should be introduced at the same time as more assessment about a persons financial standing, past business affairs and competence to do the role

• The financial promotion rules have concentrated too much on micro detail, and a distinction should be made between “product” and “service” advertising. Aggregator, lead generation and price comparison sites should also be brought within the regulatory remit

• The economic climate is restricting supply and competition, reinforcing the need for a robust rental market over the short to medium term. Any changes need to protect consumers but not unduly limit buy-to-let

• Extending the Mortgage Conduct of Business regime to second charge loans would be an appropriate extension of the rules