After four years of consultations and interim measures the FSA published the definitive rules which will govern the mortgage market from April 2014.
The FSA’s headline decision – that all sales must be advised in all but a handful of circumstances - was welcomed by brokers and the wider market.
There had been some debate surrounding whether contract variations needed advice however after consultation the FSA decided this would largely only be needed where the sum borrowed would increase.
Brian Murphy, head of lending at Mortgage Advice Bureau, thought the MMR held “few surprises” but praised the FSA’s decision on advice.
He said: “This will add to borrower protection and is clear recognition of the important role of independent mortgage advisers who counsel borrowers as to the most suitable product for their needs from across the market.”
This opinion was shared by Stephen Smith, director of housing and public affairs at Legal & General, who was pleased to see the need for advice on mortgages was “front and centre” of the regime.
But Smith felt let down that the FSA had omitted a much called for initiative.
He said: “It is disappointing to see that the individual registration of mortgage advisers has not been included.”
Interest-only also caused much debate with some claiming that the FSA had not done enough.
Dan Maskell, managing director of Finance Planning Group, was particularly concerned that people who currently have interest-only mortgages will remain mortgage prisoners because they cannot afford to switch rates or move to full capital repayment.
He said: “In these cases, a good solution would have been the ability to move those borrowers to a part-repayment, part-interest-only mortgage. This would help people move along the right track."
Mark Blackwell, managing director of xit2, said that the rules did not address the problems of borrowers without a valid exit route.
Many of these mortgages were issued when credit was freely available and borrowers were able to state “sale of property” as the exit route. But as house prices fell this option was no longer viable.
Blackwell said: “These proposals have no new measures to tackle this problem, focusing only on new interest-only mortgages, and they aren’t the real issue. Borrowers themselves will have to shoulder the burden of these loans. Struggling borrowers need to be identified and proactively helped in dealing with the problem.”
Richard Sexton director of e.surv chartered surveyors, agreed and described the legacy of interest-only customers without a repayment vehicle as “tectonic” and said that the FSA’s proposals do not really solve the problem.
He said: “The FSA is saying it’s up to the borrower to find a repayment strategy.
“But falling house prices have eaten away chunks of equity and high inflation combined with low savings rates means it will be impossible for lots of borrowers to repay their interest-only mortgage before it matures.”
