As Chancellor, Rachel Reeves, meets with regulators, we’re starting to get a clearer sense of the Government’s plans for the mortgage market as part of its broader push for growth.
It’s already made clear that it wants the Financial Conduct Authority (FCA) to relax mortgage regulations in an effort to stimulate growth and recently, we saw the regulator issue a statement reminding lenders of the flexibility already built into its rules, particularly around stress testing.
It pointed out that, while most lenders add a margin to their current reversion rate when it comes to stress testing, with interest rates now falling, this could be unnecessarily limiting access to otherwise affordable mortgages.
It also reminded lenders that no stress test is required for fixed-term mortgages lasting five years or more.
Given the principle-based nature of regulation and the strong emphasis on treating customers fairly, it’s understandable that some lenders might be hesitant to push the boundaries on what’s deemed responsible when it comes to stress testing.
After all, it’s only been a couple of years since the introduction of Consumer Duty, which was designed to ensure better outcomes for borrowers.
This latest message from the regulator definitely feels like a shift in tone from what we’ve been used to hearing. That said, there is also an argument for change.
Recent data from Zoopla shows that mortgage payments for first-time buyers are now 20% cheaper than rent.
On average, a first-timer is paying £1,038 a month for their mortgage, while renters are shelling out £1,248 across Great Britain.
I wonder how many renters, paying over £1,200 a month, have tried to apply for a mortgage but are held back by affordability restrictions or deposit requirements.
If someone can prove they’ve been able to pay that much in rent for 12 months – or even longer – it stands to reason surely that they should also be considered for a more affordable mortgage, without regulations acting as an unnecessary barrier.
The devil in the detail
So, what do we know so far? Alongside reminding lenders of the flexibility in its rules, the FCA has also revealed it will launch a consultation in May aimed at simplifying its regulations to benefit mortgage consumers.
The goal is to make it easier for borrowers to:
● Remortgage with a new lender.
● Discuss options outside the regulated advice process.
● Reduce their mortgage term.
This will be followed in June by an open public discussion on the future of the mortgage market.
While all this sounds promising, I’m sure I’m not the only one left wondering exactly what the FCA means by its first two points, as they’ve been left somewhat open to interpretation.
The most obvious interpretation might refer to borrowers who, due to higher interest rates, are struggling to remortgage away from their current lender because they’d need to pass a new affordability test.
If that’s the case, we could see some easing of the current loan-to-income (LTI) limits – similar to what has also been suggested for first-time buyers – particularly for those with a history of keeping up with repayments.
Alternatively, there could be another angle here, where the first point ties into the second proposal – ‘discussing options outside a regulated advice process.’
It’s not entirely clear what that means, or who the borrower would be having these discussions with – a broker – a lender? I couldn’t help but wonder if there’s an ‘execution-only’ feel to it.
Especially when we hear the regulator talk about its plans later this month to work with experts from the mortgage sector in an ‘Open Finance Sprint’, in order to explore ‘how smart data can enhance mortgage products and services’.
As an industry, we’ve recently been reminded that brokers shouldn’t take their share of the mortgage market for granted.
Speaking at Stonebridge’s annual conference, Robert Sinclair, in his final speech as chief executive of the Association of Mortgage Intermediaries, pointed out the growing potential for lenders to invest heavily in technology to drive more direct business and product transfers.
According to data from the Intermediary Mortgage Lenders Association (IMLA), mortgage brokers accounted for 87% of all mortgages written in the UK last year, with that figure set to rise to 91% by 2026.
We’ve reached a point where intermediary sales now account for a huge majority share of the market. It’s been a long road to get here, but it’s clearly working well.
Not long to wait
One thing’s for sure – we won’t have to wait long to see what the regulator/Government has in store for us.
With a consultation planned for May and a public discussion in June, things are moving fast.
There will undoubtedly be a range of options on the table, and I imagine the consultation will make for an interesting read.
There’s certainly room for change, and I see a strong case for revisiting income multiples, especially for first-timers and those who can demonstrate they can afford the mortgage, such as renters or borrowers with a strong track record.
We may also see some flexibility for those purchase for the first time to take out mortgages over a longer term and reduce that term over time.
However, these changes will require borrowers to work closely with a broker who can guide them through the long-term implications of their decisions, so let’s hope that’s part of the plan as well.
While we must remain open to change, given the energy and resources the industry has invested in Consumer Duty over the past few years, we must also proceed with an element of caution.
Simon Jackson is managing director of SDL Surveying
