Article by Gary Watts
Director – Which Network Ltd
Indirect changes affecting mortgage professionals :-
Self cert mortgage - The FSA has come straight out and said it cannot see a legitimate
need for this product and is considering prohibiting it. The problem with this is
that while most mortgage brokers would agree that the product has been widely misused
in the past, there will still be the occasional client for whom the product is the
right or indeed only choice. There are still a fair number of jobs for example where
income is sporadic and mainly cash such as a self employed taxi drivers, hair stylists,
private cleaners, bar workers, and nannies to name a few. Typically their accounts
would be done only at the end of the year by themselves or a bookkeeper rather than
a registered accountant and in any situation where the client has been trading less
than two years it is completely possible that the first years accounts will be unduly
low due to start up costs, with the second years accounts not yet produced. Since
in this situation income is cash and many expenses are paid in cash, copies of bank
statements aren't really a good indication of disposable wealth. Are we then to
say that these people shouldn't be able to have a mortgage?
Fast track - In FSA's effort to bundle fast track and true self certification mortgages
together for the sake of the MMR, this could create barriers to some borrowers. It
must be remembered that fast track mortgages are merely a method of streamlining
a mortgage application. Most fast tracks require a good credit score, the mortgage
to be a prime product, no adverse credit history, all applicants to be on the voter's
roll, income within criteria. Under these circumstances the lender will allow the
case to go through without necessarily needing any further verification. However
unlike self certified mortgages, the lender reserves the right to ask for any of
this documentation throughout the life of the mortgage.
Affordability - This is being blamed for a large part of the problems in the mortgage
market, but other than the cessation of self cert and fast track mortgages, the FSA
are not really suggesting anything radical in this field. The final responsibility
for affordability in a mortgage rests with the lender, which seems reasonable since
it's their money that is at stake. The FSA are currently looking at setting up a
committee to decide on what form affordability checking should follow, but since
it's been part of almost all client fact finds for the last five years this should
not impose any burden on brokers
Secured Loans - The FSA are strongly considering bringing all secured lending under
their control which in the great scheme of things must make sense as there is little
point in setting up a system where clients are limited to say 65% LTV because of
affordability issues, if they can then just take out a secured loan for another 20%.
Equity Release - This is more contentious because they are considerations that equity
release and lifetime mortgages fit in more with pension and investment products rather
than the range of standard mortgages. However there are strong arguments against
this since it could be argued that any mortgage taken out to offset a tax liability
or use as a deposit for a BTL property could equally be classed as having an investment
side to it. It should also be born in mind that with equity release mortgages already
requiring the broker to have additional qualifications and carry out more stringent
compliance requirements control of this product is already very tight.
Buy to let (BTL) - The FSA are also considering bringing BTL mortgages under regulation.
This would undoubtedly lead to an even greater reduction in sales of this product
due to the additional criteria borrowers would have to fulfil to satisfy FSA demands.
The good news however is that this could only be brought into force by the treasury
and at this time they have made it known that this could be seen as disproportionate
and they do not see this as a helpful step in stabilising the economy.
Initial Disclosure Document (IDD) - It is suggested that the current IDD should be
discontinued, possibly to be replaced with a "terms of business" document which will
be in the intermediaries own format which could be less formalised and give broader
information on how the intermediary operates and their charging structure.
And that's the MMR in a nutshell. Having now studied it in some depth I must admit
that contrary to popular opinion some of the suggestions by the FSA will only help
the industry, in particular the expansion of the register and regulating second charges
will be useful, and should help to rid the industry of some pirates, a lot of it
seems quite neutral or only causing a little extra work for advisers, and a few items
such as regulating BTL could prove a real barrier to economic recovery is the sector.
One thing which is for sure however is that it is far more benign that porting across
a sawn off version of the Retail Distribution Review (RDR) which was mooted as an
alternative at one point.
