CML calls for clear regulatory reform

In publishing its submission to the Financial Services Authority (FSA) on the future of mortgage regulation, the Council of Mortgage Lenders said that lenders recognise the need for change emerging from the regulator's ongoing review.

But it also warns that, with the mortgage market still not functioning normally, there is a heightened risk that intervention could deliver the wrong outcome for consumers.

With the FSA expected to publish its discussion paper later this month, the CML said that proposals for regulatory reform must focus on areas where evidence of consumer detriment have been clearly identified.

The CML’s submission points out that some former concerns about the mortgage market have already been addressed by the way in which firms have responded to changed market conditions. It therefore argues that there is no need for urgent intervention by the FSA to complete its review, change the mortgage rules or implement broader regulatory reform.

The CML points out that the European Commission’s ongoing review of responsible lending and borrowing is another reason for caution. It is crucial - for consumers, as well as firms - that proposals in the UK and Europe are complementary, not conflicting.

The CML does believe, however, that one outcome of the review should be a widening of the FSA’s remit to include secured second charges alongside first charge mortgages, which would benefit both consumers and firms. But it argues that the FSA’s primary goal at this stage should be the introduction of more effective supervision of the rules and firms it already has in place.

On the regulation of buy-to-let, the CML acknowledges that views among lenders are mixed. But it points out that the unregulated buy-to-let market has already delivered significant benefits for most landlords and tenants.

As in the mainstream market, proposals for change in the regulation of buy-to-let lending must seek to address clearly identified consumer detriment.

CML director general Michael Coogan said: “The FSA faces a number of challenges and potential pitfalls in progressing its review too quickly. Perhaps the biggest of all is to resist external pressure to implement measures at a time when the mortgage market has self-corrected many of the past problems, but is still not functioning effectively.

“We must not forget that the existing mortgage rules have broadly been working well since they were introduced in 2004, enhancing protection while promoting competition and choice for consumers.

“The current problems stem not from a failure of the mortgage rulebook, or from widespread credit problems in a recession, but essentially from past approaches to supervision of the rules and an over-supply of money to lend out. Now the pendulum has swung and the problem is the lack of available mortgage finance. Regulatory intervention on mortgages is unlikely to reverse this trend and may accentuate the problem.

“As it progresses its mortgage market review, the FSA should continue to have in mind the wider goal of promoting a vibrant and competitive mortgage market - as we had before the credit crunch -encompassing different types of lender and catering for a wide range of customers.”