The FSA’s aim is to ensure a sustainable mortgage market that works better for consumers and is competitive and flexible without exposing lenders to unnecessary risks. It should lead to higher quality mortgages being sold, which should lead to lower house price growth and reduce future levels of arrears and repossessions.
The main impacts on lenders and mortgage advisers have already been felt following changes in the mortgage market since 2007, but it is important to recognise that the MMR reforms will continue to affect different parts of the mortgage market in different ways.
Smaller lenders who do not offer an advice service and do not have access to current account data, will have to raise their game to remain competitive against larger organisations which largely meet MMR requirements. Retail funded lenders and firms able to access the capital markets will have a funding advantage over non-banks that are unable to write new business because of funding constraints.
For consumers looking to enter the market, the MMR will lead to fewer mortgages being available, tighter lending rules and higher costs reflecting the risk of long-term loans. However, the FSA is consulting on transitional provisions on affordability that would apply to existing borrowers.
The key question which remains to be answered is whether the MMR rules as planned may have unintended consequences which could be harmful to the market.
The timetable for implementing these reforms will also need to be sensitive to the broader economic environment, so it is still not certain the new rules will come into effect in 2013 as planned.
