Consumer Panel work on the Mortgage Market Review

The FSA launched the Mortgage Market Review (MMR) with its October 2009 discussion paper. The review had the admirable aims of seeking to protect consumers, not only by ensuring the financial system was prudentially sound, but also by ensuring that firms conduct their mortgage business fairly.  

The Panel devoted considerable time to the MMR.  We also set out our vision of a mortgage market where consumers could shop around for affordable mortgage products that met their individual needs. 

The Panel was supportive of the FSA’s attempts to mitigate against irresponsible lending but critical of some of the key elements of the FSA’s initial proposals.  We were particularly concerned about ‘mortgage prisoners’ - consumers trapped in an existing mortgage agreement, perhaps because of a high loan-to-value mortgage, negative equity, inability to exit a fixed term deal or by the severe contraction of the interest-only market. We also said that the FSA should address the criticisms contained in the independent Peer Reviews of the welfare analysis, commissioned by the Panel, before coming to final policy conclusions.

In addition the Panel was concerned that it was vital that the MMR proposals did not depress an already depressed housing and mortgage market and make life worse for indebted consumers.  Therefore, it was our view that unless the FSA was fully confident on the basis of solid empirical evidence that consumers would not be harmed by prompt implementation, the new responsible lending requirements should not have been brought into effect until the housing market had demonstrably recovered.

In response to the FSA’s final rules – published in October 2012 – the Panel welcomed the FSA’s ‘common sense’ approach.  We are much happier with the position the FSA has now reached.  This is testimony to the huge amount of work the FSA has put into the MMR. The general tone now appears to us to be far better balanced between the needs of consumers and those of the industry.
Nevertheless, while it is vital that vulnerable consumers are protected it should be in a manner that does not deprive the creditworthy from accessing mortgage finance. We believe these aims would have been more easily achievable had the FSA accepted in full our recommendations regarding mortgage prisoners, the estimation of living costs, interest rate stress testing, and the timing of implementation.

The Panel has urged the FSA to remain vigilant and supervise the new rules carefully and consistently to ensure good outcomes for borrowers.    You can read the text of our press release here and our response to the final consultation here

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