Responding to the CML response to the FSA Consultation on responsible lending, Chris Taylor, CEO of MarketGuard, said: “The financial crisis of recent years has made us all more alert to risk. In less than two years we saw house prices drop (and then rise) by as much as 20%, interest rates move by over 5%, mortgage lending and the number of mortgage advisors drop by as much as 60%.
"With continuing global economic instability and the UK government cuts yet to bite there are many risks to lending and it is a brave man who puts too much faith in any prediction for even the near future. So at least the reports show there is agreement that risk mitigation is necessary.
“With a background of heightened risk the most interesting proposition in the recent reports is for lenders and intermediaries to use existing insurance products to help customers manage their risk. Simple general insurance policies, backed by the FSCS and regulated by the FSA, can protect against interest rates, unemployment, sickness and incapacity.
"Sold separately from the mortgage these policies are portable between homes and lenders and offer the very flexibility that the FSA is searching for. For the lender they offer a significantly decreased risk of arrears and may allow lending where affordability stress tests may fail."
And Taylor added: “The MMR is coming and almost certainly in the form we have already seen, it is up to industry to find a way to work in the new world rather than close their eyes and wish the old one would return.
"An approach making greater use of insurance products may well be the solution, offering increased flexibility for consumers and reduced risk for lenders. This may in fact be the only positive suggestion to come from the MMR consultation.”
