Analysing the possible impact of the FSA's proposals, the CML said that it is not possible to quantify the precise effect on future business - but it does suggest that the impact is likely to be higher than the regulator has yet acknowledged.
More borrowers would be protected from possible arrears and the risk of possession, but a substantially higher number of mortgages taken out between Q2 2005 and Q1 2009, which have shown no signs of payment difficulty, would not have been granted if the FSA's affordability approach had been in place.
Commenting, the CML said: “We estimate that the cumulative impact of the proposals, if implemented as proposed in the FSA consultation paper and using the FSA methodology, would have resulted in around half of all mortgages over that period not being granted on the basis that they were taken out.
It said: “If the FSA’s proposals had been in effect from 2005, around 3.8 million “good” loans would potentially not have been granted. While fewer arrears and repossessions would have occurred, this effect would have been modest compared with the impact on large numbers of creditworthy borrowers.”
“We hope this analysis will assist the debate, that the FSA's chairman Lord Turner has called for about where the balance between lending risk and consumer responsibility should lie.”
This impact assessment is part of the evidence-based analysis that will inform the CML’s final response to the FSA’s responsible lending consultation on 16 November.
Responding to the CML’s comments, the FSA said: “Our proposals are designed to address the major failures that have occurred in the mortgage market and we are actively consulting with all stakeholders to ensure we get the right solution.
“Our evidence shows that 16% of borrowers are already financially overstretched and they are facing problems now as a result of their lenders’ practices in the past, not the MMR. But for now borrowers are also benefiting from historically low interest rates and house price inflation - which cannot go on forever.
“This is why it is imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions.
“We will continue to work with industry and consumers to establish a strong mortgage market where those who can afford mortgages are able to get them. It is in the interests of all that we get this right: both lenders and borrowers suffer from irresponsible lending.“
