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Brokers have welcomed moves in the FSA's latest MMR paper to ban non-advised sales and demand greater clarity over lenders' provision of advice to consumers It took its time but the final consultation paper for the Mortgage Market Review came as an early Christmas present for the industry. Bridging has been under the spotlight for the last six months and it is little wonder that the FSA has sought to take action. The primary reason is the difficulty in assessing capital compliance costs for lenders, which will be everything from £16m a year to a whopping £126. One area where the FSA is clearer is the cost to itself, which it estimates to be negligible with no range. It's not only mortgage firms who is able to feel the impact of this huge piece of regulation but prospective homeowners too. The FSA is predicting the new rules would have prevented 17% of all mortgages in the boom. Easy credit was also a major factor behind booming house prices in the last decade so the FSA estimates that by 2022, homes will be 11% cheaper than they would have been without the MMR rules. The economy too may be affected, with GDP as much as 0. The consequences are huge for mortgages, housing and the economy, that will naturally affect the broker market. Days after Nicoll's speech the FSA fined non-advised mortgage seller Fastmoney £28,000 for failing to ensure that clients who took out bridging loans were treated fairly. "We are certainly not advocating lending to individuals without any income," he says. It is high praise indeed for a regulator that has often been accused of unfairly attacking the broker market. There were other causes for optimism as the plan to scrap the Key Facts Illustration was abandoned and the Initial Disclosure Document consigned to the dustbin. There is also now no need for a separate KFI for direct-only deals but brokers will need to provide a KFI for every different product they offer, if a KFI is specifically requested or for execution-only deals. Income verification will be required for all mortgages so it will be a different beast post-MMR. The MMR states that systems are already in place to deal with evidence passed from brokers from non fast-track business. "It does not appear to be overly onerous to propose that this happens for all applications, given the benefits that would be achieved," it says. Applicants will be ready to pass pay slips and bank statements through their brokers, and lenders will be ready to use existing customer data, such as current accounts, to verify income. "So I don't think simply handing over the verified income documents to the lender will have much impact," says Strutt. The FSA is still demanding human intervention in income verification, however, which means self-cert is dead and buried. Lender responsibility has been a key feature of the whole of the MMR, particularly their value for money assessments. But Charles Haresnape, managing director of residential mortgages at Aldermore, believes brokers should still have a role in checking affordability. Buying an exemption Another niche area given special treatment is high net worth clients who received a series of exemptions from the MMR. Notably, high net worth clients will be exempt from mortgage rules and are set to be defined as those earning £1m or holding assets of no less than £3m. It seems that high net worth clients will be treated more like commercial mortgages without the added protection of consumer deals. Boulger says much of the MMR debate will address who is allowed to opt out of aspects of the rules. The Council of Mortgage Lenders says it is too early to make an entire assessment but warns that any moves must not create barriers to lenders offering mortgages. "One of the potential advantage of having all advised sales is that consumers might have greater clarity over what service they are being given," says a CML spokesman. Lenders can now set their lending policies with greater confidence and there is hope that those who rushed to implement policies that have since been dropped may think again. Lenders had already begun to act upon rules applying to interest-only changes, the 25-year-term value for money assessment and mortgages for the over 75s. Boulger believes the increase in clarity means lenders could relax their criteria slightly in these places. "Lenders have claimed they are under FSA pressure to make changes but when we ask the regulator, it says there's no pressure," he says. "Noticeably, Woolwich has been assessing value for money on 25-year terms but that is no longer a proposal in the MMR so it will be interesting to see what it does. "Lenders cannot hide behind the regulator as an excuse any more for a few of their lending policies. So there is much to be pleased about, with some brokers positively crowing about the move to ban non-advised sales. It's a positive development in a dour market and evokes Mark Twain's famous comment upon reading reports that he had died. "Rumours of my death are greatly exaggerated," he quipped. Then and Now: What has changed? The FSA has changed its stance on a number of key MMR issues. But lenders are cautious over how the plans will affect their sales processes, claiming it is too soon to make predictions. Andrew Baddeley-Chappell, head of mortgage strategy and policy at Nationwide, says it undertakes both advised and non-advised sales through its branches but the difference between the two can be relatively small. "Given that the MMR will be making wider changes to the whole sales process, it is still too early to assess the overall impact of the changes that are proposed," he says. "Mortgage clients along with their requirements vary greatly and it is still to be tested whether the proposed regime will adequately and efficiently accommodate the full range of mortgage transactions - including those looking for the very best deal for existing borrowings. Halifax offers both advised and non-advised sales in its branch network and customers decide which to use at the start of their mortgage appointment. "However, given that the significant majority of our advisers are qualified to offer both, we do not expect to make any significant changes to our sales process," she adds. While these lenders claim there is little extra cost, the ban on non-advised sales is one of the most significant areas for lenders. Considering the backlash to a European proposal to make advice compulsory and force mortgage sellers to supply a range of products, one would expect lenders to lobby against theses changes. Fast-track is dead - long live fast-track Another seemingly positive move for brokers is the survival of fast-track - albeit under a radically different guise. This is surely tacit recognition of the important role of mortgage advisers, and brokers in particular, in creating a safer market. "The FSA is doing this as a result of concerns that a large majority of customers who go direct believe they have received advice when they haven't," he adds. "It can be a problem that the FSA has struggled to resolve because mortgage sellers must ask questions to provide an appropriate product but that leaves clients believing they have had advice. This gets to the heart of why many believe we won't see a trend of lenders choosing to go direct as opposed to via brokers. "It may make lenders value brokers more highly," he says. "Lenders will need to consider the costs of getting their branches up to scratch. ". In its cost benefit analysis the FSA predicts the MMR will accelerate the trend of consumers moving away from brokers. This is bleak reading for the sector, so why have all mortgage trade bodies and the industry been so welcoming of the latest paper? No advice, no mortgage One theory put forward by industry insiders is that the impact assessment for direct deals was undertaken before the FSA finalised its rules on non-advised sales. "Crown is witnessing first-hand the impact on borrowers who took out interest-only loans without a suitable repayment vehicle or strategy in place," she says. "Some of these are reaching the end of their mortgage term and for many, there's no alternative to the loss of their home. Nigel Stockton, financial services director at Countrywide, says the MMR had to review interest-only. "I was delighted to see the recommendations for interest-only mortgages. This is entirely right for individuals who have interesting tax positions and some high net worth clients. A bridge too far? Other niche areas affected include bridging, which saw wide-ranging changes to the industry. "The proposals for high net worth customers on interest-only also make perfect sense. Always look on the bright side of life Some in the industry have been frustrated by the fact that there is no mention of individual registration in the paper. Assigning all brokers a number would have helped to make sure that rogue brokers had no place to hide. "It is disappointing that a concrete timetable for individual registration was not announced, but the FSA says this remains on its radar, so hopefully we'll hear some news soon," says Paul Shearman, proposition director at Openwork. But overall, there's no getting away from the fact that these concerns seem minor compared to the huge positive of the FSA moving to wholeheartedly support advice. Initially the FSA appeared to ban interest-only altogether in its responsible lending reform but now it is allowing it to continue so long as a repayment vehicle is in place. Jane Manning, head of compliance at Crown Mortgage Management, says it is a return to the lending practices of a decade ago. The European mortgage directive also pledged to regulate all bridging loans when it was published last March. "High net worth clients are usually intelligent people but they are not experts in the mortgage market and their cases are usually complicated so they use brokers," he says. High net worth broker Enness Private Clients supports the exemptions but believes the definition is too high. Hugh Wade-Jones, director of Enness Private Clients, says that given the nature of many high net worth individuals' income and assets, it is right to treat them separately. "But if we have somebody who, under normal mortgage rules, has a non-standard income, yet can put down five years' worth of mortgage payments on account on day one, we feel they should be viewed as just as secure a lending prospect as someone who is borrowing on the back of their income alone. The regulator officially binned the idea of all mortgages being assessed on 25-year terms, having revealed the plan earlier last year. Known Unknowns Despite the new detail in the 700-page report there remain, to paraphrase former US defence secretary Donald Rumsfeld, many known unknowns, particularly over the costs to the industry and the role of European regulation. The FSA estimates that overall the changes could cost the industry up to £170m a year on top of an initial one off bill of £65m. |
Tuesday, 10 January 2012
Loud & Clear
