CML response to FSA Mortgage Market Review consultation

By Bridging Loan Directory -


To avoid causing problems in the mortgage market, the FSA needs to make some further amendments to its proposed package of regulatory reforms, says the Council of Mortgage Lenders in its consultation response submitted today.

In its detailed response to the FSA’s Mortgage Market Review consultation paper 11/31, the CML identifies four main areas on which changes and clarification are needed, which are:

  • A one-size-fits-all approach to advice
  • Supervisory uncertainty
  • Help for existing “trapped” borrowers, and
  • Interaction with the European mortgages directive.

On advice, the proposed rules seem to be based on the presumption that advice is face-to-face, whereas in fact it is developing increasingly into telephone and internet channels. The CML is also concerned that the definition of advice is too wide, and needs amendment: the requirement to give advice whenever there is “spoken or interactive dialogue” would drag into an advice process many borrowers who do not want or need it. The CML suggests that the FSA needs to:

  • ensure a consistent approach with the perimeter guidance (which allows dialogue to occur with borrowers without it necessarily being deemed to be advice) and amend the proposed rules (which do not);
  • ensure that the advice proposals only capture those customer contact activities that will be undertaken by approved persons;
  • require that where new money is being lent, borrowers are encouraged to receive advice but can opt for execution-only if they want to; but
  • require that customers in the four higher-risk borrowing groups (equity release, sale and rent back, right to buy, and debt consolidation) should not be able to opt out of advice.

On supervisory uncertainty, the CML’s concern is that, while the responsible lending rules appear to allow certain flexibility to lenders, it is possible that supervisors may be more prescriptive. The CML urges the FSA to ensure that its monitoring, supervision and enforcement are in line with its policy intentions, reducing the risk of lenders adopting an over-cautious approach due to supervisory uncertainty.

Existing borrowers could find future borrowing problematic under the new rules. The CML is concerned that the transitional arrangements, as currently drafted, are complex and may not be widely used. The CML suggests that, instead, lenders should be able to lend with discretion on an exceptional basis to borrowers who would otherwise be trapped.

Finally, the CML reflects that the nature and scale of the changes proposed in the MMR cannot be underestimated, and suggests that 18 months rather than 12 months would be an appropriate minimum period for implementing the necessary changes once the final policy has been published. The CML also re-emphasises the need for implementation of the MMR to reflect the outcome of the European directive, as there is otherwise a risk of contradictory requirements that could result in two sets of changes having to be implemented in quick succession.

Paul Smee, CML director general, comments:

“After four consultation papers, the FSA has demonstrated a welcome ability to listen. It needs to continue to do so as we progress towards implementation of some very dramatic regulatory changes. It will be important for the FSA to continue to flex if it becomes clear that the new framework will cause too much risk aversion in a market that needs to be able to serve the whole diverse range of creditworthy customers, not just those with the most straightforward circumstances.”