Posted: Monday 19 December 2011
The FSA (Financial Services Authority) has published the much-awaited consultation paper on its Mortgage Market Review. The new consultation paper, dubbed “MMR2”, builds substantially on the 2009 discussion paper, and is open for comments, which should reach the FSA by 30 March 2012. The final form of the new rules will be determined by the FSA in the summer of 2012, but will not be implemented before 2013.
John Lunn, head of Morton Fraser's retail banking team, comments: “behind the press hype and hyperbole, the mortgage industry has broadly welcomed the proposed package of reforms set out in MMR2. This is hardly surprising given the amount of stakeholder involvement over the last two years. The reality is that the mortgage market has been through a process of self-correction from the pre-crunch excesses, and the headline grabbing self-certified and fast track mortgages are long gone.”
In the foreword to the new paper Lord Turner, FSA Chairman, emphasises the core proposals based on “common sense principles of good underwriting”. The reforms are aimed at ensuring that common sense is embedded in the regulatory framework, to avoid the danger of a return to poor lending practice. A robust assessment by the lender of the borrower’s ability to afford the mortgage is to be the key focus.
And what of those existing borrowers currently finding it difficult to get a new mortgage due to market conditions and commercial considerations: the so-called “mortgage prisoners”? Well, the reforms propose transitional measures designed to soften the affordability test. This will allow lenders to waive some of the affordability rules if the borrowers meet certain conditions: they must be able to demonstrate a good payment history covering at least the last 12 months; must not be seeking to borrow additional sums; and the monthly payment under the new mortgage must be the same as or lower than their current payment. Borrowers should be able to move to a new lender, or change products with their existing lender, if these conditions are met.
Our retail banking team advise a number of high street banks and building societies on mortgage-related issues, and we will be reporting on these reforms in more detail in the coming weeks. Please contact John Lunn if you would like to be kept abreast of developments.
Click here to download MMR2.