Lenders will be put in a position where they are unable to treat customers fairly because regulation prevents them from remortgaging certain existing customers onto deals better suited to their financial situation.
The FSA proposals out this morning look as though the regulator is intent on banning self-certification mortgages and fast-track deals by making affordability checking and proof of income mandatory requirements.
The fallout of this regulation, if it is implemented in its current form in the Mortgage Market Review in the autumn, will see rafts of borrowers unable to remortgage off their existing self-cert and fast-track deals because they do not have the required proof of income.
Peter Williams, executive chairman of the Intermediary Mortgage Lenders Association, said the FSA seems to be assuming that people can migrate to new deals, but while some will be able to, there will be many, many borrowers left in limbo.
Lenders will also struggle to use forbearance with these borrowers should they experience financial difficulties.
Williams said: “Those people will be very vulnerable to base rate changes and though lenders will make every effort to treat them as fairly as possible, the circumstances in which lenders are being placed will not allow them to treat all existing borrowers as fairly as possible. The FSA still hasn’t offered any clarity on that.
“I think removing fast-track is regrettable, as well as self-cert. There are both products which exist for very justifiable reasons, which I think the FSA acknowledges. I’m not sure the FSA is quite sure what they’re planning – in one place in the document released this morning they say self-cert will be ‘effectively banned’, and later on they say ‘banned’ completely.
“The way in which they’re proposing to police affordability is through closer scrutiny of business accounts – but they could have done this before. This seems very heavy handed regulation and it’s yet another example of an MMR proposal that will prevent yet more people from entering the mortgage market.
“In terms of the industry being able to push back on the proposals in this paper, I think there’ll be a little bit of adjustment, but we’ve already had so many discussions leading up to this consultation paper citing industry fears, that I suspect there will be real limits on the push back the industry will have against the FSA.”
