4.2.5 The Mortgage Market Review (MMR)
A further key recent development affecting the industry and the regulations for selling financial products has been the FSA’s ‘Mortgage Market Review’ (FSA, 2011d). This was initiated in 2009, and by 2012 the policy implications of this review began to be applied. This review has two broad aims:
- for the UK to have a sustainable mortgage market, which means having a market where the mortgage lenders have sufficient capital and financial solidity to support their business and the market is competitive and innovative
- for the UK to have a market that works better for consumer, which means a market where there are a range of products available to consumers, where they are aware of the costs and risks of both mortgage borrowing and property ownership and where the process of selling (or ‘distributing’) mortgage products is undertaken professionally and with the aim of achieving good outcomes for consumers.
The particular focus of the review has been on how mortgage products are structured and sold, with the FSA asserting that a ‘key problem [with mortgage selling] has been the lack of proper affordability assessments [and] irresponsible lending practices’ (FSA, 2009, p. 12).
The key policy implications are:
- the tightening-up of regulations about who can undertake advised sales of mortgage products, with all advisers being required to be professionally qualified in respect of such business
- the extension of the ‘approved persons’ regime to mortgage advisers and arrangers
- the requirement for improved recording, management and recovery of mortgage arrears
- the requirement for full disclosure to consumers of all information relating to the costs and risks of mortgage products, including adviser charging
- closer attention by mortgage lenders to the affordability of mortgages being sold to consumers – in respect of both the payment of interest and of the capital sum advanced; this includes the requirement for stress testing to assess if consumers can afford to meet payments on their mortgage at higher interest rates than those prevailing at the time of the mortgage sale
- the recording of whether sales of mortgage products are ‘advised’ or ‘non-advised’: the former are sales that follow the guidance supplied by mortgage advisers; the latter are mortgage sales where the customer makes their own choice.
The roll-out of the new regulatory rules under the Mortgage Market Review was completed in 2014. The subsequent – albeit temporary – dip in lending was ascribed to the impact of these new tighter rules on mortgage sales.