Regulators’ determination to reform the UK mortgage market has resulted in a layering effect which threatens to stifle consumer access to credit if it goes unchecked, according to a new report.
The cumulative impact of new MMR financial regulations introduced last year and the implementation of the European Union Mortgage Credit Directive, is affecting the lending recovery, says the Intermediary Mortgage Lenders Association (IMLA).
The report acknowledges and accepts the need and ‘inevitable’ cost of improving the safety of the banking sector and preventing a repeat of the financial crisis but it warns that the common objective of building a ‘sustainable’ market with enough room to deliver positive outcomes for consumers is threatened by the sheer volume of new rules.
It also points out that the overlapping effect may unwittingly tip the balance too far away from consumer choice and it is calling on the Bank of England to establish a in industry panel to guard against too many rules.
The report raises concerns over regulators’ potential ‘bias to action’ where they perceive a high cost to their reputation if they are seen to be too permissive, compared with a low risk of being too restrictive. IMLA cites the Financial Policy Committee (FPC) decision in June 2014 to impose interest rate stress tests and limit high loan to income (LTI) mortgage lending as an example of this bias.
The actions came at a time when the effect of the MMR on the market was still unclear, and saw the fledgling recovery of 2014 followed by a subsequent downturn in mortgage activity that brought eight successive months of approvals falling year on year.
Despite the slowdown, the FPC was given further powers in February 2015 to cap loan to value and debt to income levels for mortgages. These powers are as-yet unused but the IMLA suggests these actions support the view that regulators perceive a ‘normal’ mortgage market to be significantly smaller than that which existed before 2007, which has implications for access to home ownership as the UK population grows.
To prevent regulatory layering from choking off the recovery, IMLA calls on the Bank of England to maintain an ongoing review of the new regulatory framework to identify unnecessary overlap and costs. One solution it proposes is a joint Bank of England industry panel that specifically focuses on identifying areas where regulations are unnecessarily complex or duplicative.
‘No-one is questioning the need for continued caution or the regulators’ responsibilities to put boundaries in place to ensure the mortgage market is sustainable in the long term,’ said Peter Williams, executive director for IMLA.
‘You could also argue that regulators and industry will naturally have differing views about what constitutes normal or healthy activity and this is exactly why it’s in consumers’ interests to put a permanent forum in place where the two can put the vast tomes of new regulation under the microscope,’ he pointed out.
‘We must ensure that future regulatory changes bring genuine benefits that warrant their costs, and do not weigh too heavily on consumer access. Every new set of rules takes us further into unchartered territory and heightens the risk of unintended consequences,’ he added.
‘Getting the right balance between safety, efficiency and choice is the biggest challenge facing the UK mortgage market and it will take a collective effort to hit the mark,’ he concluded.
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Source: Property News Spain