Responses to the Finacial Conduct Authority’s mortgage rule review close today, which promise to bring sweeping changes to the home loans market and the role of brokers.
The City regulator’s review is set against Labour plan to build 1.5 million houses by the next election. It wants people to be able to buy these homes.
When regulators relaxed a decade-long lending rule in July to allow large lenders to lend over 15% of their overall new home loans at over 4.5 times a buyer’s income, the Chancellor made her views clear on what she hoped the move would bring.
Rachel Reeves said the move would lead to 36,000 extra first-time buyers entering the market in the first full year of the relaxations.
The FCA said, when it published the consultation in June, that its intension was to “rebalance the collective risk appetite in mortgage lending, including trade-offs and risk that this could lead to”.
Property professionals submitting applications to the review say the regulator’s scope it wide-ranging.
It includes encouraging more first-time buyers, the self-employed and those on variable income into to market.
The regulator will also look at barriers to shared ownership and later life lending.
It will also the wider use of rent-based affordability tests and ways to boost digital house buying.
But the role of the broker is also under the spotlight.
In an earlier May consultation paper, the FCA said it wanted to increase the use of execution-only sales for remortgages to lower borrowing costs.
The watchdog laid out three scenarios that its proposed broker fee changes could lead to.
Its highest case was a 7.5% fall in home loans sold by intermediaries — around 97,000 mortgages — leading to a £95.1m fall in procuration fees and a £21.4m drop in consumer charges, adding up to £116.5m in lost fees.
Brokers are concerned that this more sweeping review will lead to further changes.
Broker bodies say that as around nine in 10 mortgages arranged through intermediaries, any regulatory simplification must not dilute access to impartial, professional guidance.
They add that the FCA should continue to encourage advice-led mortgages so customers can compare options and avoid foreseeable harm.
Coventry for Intermediaries head of intermediary relationships Jonathan Stinton lends support.
He says: “Whatever changes come, brokers will remain central to helping clients make sense of their options. Their role in guiding people through product transfers, remortgages and all the complexity in between is essential.”
Stinton goes on to say that the “pendulum” of mortgage rules“ may have swung too far” following regulations brought in after the 2008 financial crisis, with “a more balanced approach now needed”.
Capco consultancy managing principal Michael Shand says that the regulator should have cost-cutting firmly in its sights.
Shand says: “Simpler rules and reduced advice requirements in low-risk cases can make it easier for people to buy their first home or progress through different stages of ownership.
“Lenders also have an opportunity to use data and technology to design products that reflect modern borrowers.”
But he adds: “Lenders will need to balance innovation with responsibility, ensuring that more personalised products remain robust if economic conditions change.”
Canada Life UK managing director of retirement Pete Maddern says the review “opens up an important conversation about the role that later life lending can and should play in sustaining income standards in retirement”.
He adds: “For many individuals retiring now and in the future, pension savings alone will be insufficient to meet income needs.”
Maddern points to FCA data that shows that one-third of adults with a defined contribution pension have less than £10,000 saved.
He says: “With property wealth representing 40% of total household wealth in Great Britain, unlocking this resource through later life lending will be critical to ensuring financial security and quality of life in later years.”
But Coventry’s Stinton points out that solving the UK’s housing crisis depends on building more houses.
He says: “Regulatory measures are just one piece of the puzzle.
“There is a risk that loosening affordability rules could fuel house price inflation rather than widen access to homeownership.
“Until the housing shortage is addressed, changes to affordability and product design will only go so far.
“If we want to build a more sustainable, accessible market, any reforms must go hand in hand with a meaningful push towards housebuilding.”
The FCA look set to free up large parts of the mortgage market, with the risk of increased defaults, it admits, may follow.
However, the other part of the puzzle is a dramatic rise in housebuilding.
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