News and Press
FSA mortgage market review

On 19 October 2009, the Financial Services Authority (FSA) issued its long-awaited mortgage market review discussion paper (the Paper), setting out proposals for major reforms in the UK mortgage market (the Market).

The proposals demonstrate the FSA's more 'intrusive and interventionist' approach to regulation, in response to the near collapse of the global financial system, the consequent credit freeze and downturn in the Market in 2008.

Primary objectives of reform

The FSA's two main aims in conducting its review is to make sure that the Market is sustainable for participant firms and that it works better for consumers.

Accordingly, the Paper discusses the current review of prudential requirements and the need for banks to have sustainable business models (whilst remaining innovative and competitive), in addition to the importance of consumers realising the implications of treating a property as an investment.

The FSA's proposals

The most significant proposed changes are:

• affordability tests for all mortgages, making lenders ultimately responsible for assessing a borrower's ability to repay the loan;
• a ban on self-certification mortgages;
• a ban on loans which contain certain high-risk characteristics;
• a ban on unfair arrears charges and ensuring firms do not profit from borrowers in arrears;
• extending the Approved Persons regime to cover all mortgage advisors, making those individuals personally accountable to the FSA; and
• extending the FSA's regulatory scope to cover buy-to-let mortgages, second charges, and further lending secured on a property.

Suzanne MacDonald, head of TLT's Financial Services Regulation team says, "The review of the Market is at an early stage and some of these proposals may not carry through to fruition, although the FSA's agenda is clear. These measures have been proposed to stimulate discussion and comments on the Paper are accepted until 30 January 2010. Clearly mortgage lenders and banks alike will want to provide comments if they can to influence and perhaps shape the subsequent rules. The FSA will then publish a feedback statement in March 2010 and we would anticipate seeing final rules published in the third quarter of 2010."

For more information or to discuss this in more detail, please contact Suzanne MacDonald.