FSA to extend AP regime to individual mortgage advisers; Rules out RDR read-across

The FSA has proposed extending its approved persons regime to include individual mortgage advisers in a bid to improve standards and stop rogue employees from moving round the industry.

However, other proposals in its Mortgage Market Review discussion paper will see more duty of care for the overall mortgage sale passing to lenders, who will bear ultimate responsibility for assessing and verifying affordability in every sale.

The regulator proposes the AP regime will extend from senior management, or those with 'significant influence' for mortgage and other home finance firms, to all other mortgage and other home finance advisers and arrangers (specifically to those who are bringing about a home finance activity).

It warns the proposals are likely to carry significant costs, in the form of a one-off cost to the industry from individuals being required to apply for AP status, coupled with resource and implementation costs for the FSA.

In the paper, the FSA also ruled out a read-across of the RDR to the mortgage market as it believes problems in this area have different underlying drivers.

"Our key priority is to effectively address the issues in the mortgage market before we look to read-across a solution that was developed with different markets in mind."

Other major plans include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay.

It also intends to ban ‘self-cert' mortgages and instead, a verification of borrowers' income will be required.

The sale of products which contain certain ‘toxic combinations' of characteristics that put borrowers at risk will also be outlawed. It will also clamp down on arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears.

Other suggestions include extending the FSA's scope to cover buy-to-let and all lending secured on a home.

The regulator has also not ruled out further changes if its initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.

Its discussion paper is open until 30 January 2010 and the FSA will be actively seeking views from consumer groups and industry. A feedback statement will be published in March. Implementation will be phased, with the focus on speed for areas of high detriment, such as arrears.

Paul Broadhead, head of mortgage policy at the Building Societies Association, said it had significant reservations about the possible unintended consequences of some of the ideas expressed.

He adds: "We need a sensible balance between appropriate regulation and allowing people to buy their own home when they can afford to do so. The vast majority of the British population aspire to home ownership and these proposals must not frustrate the sensible ambitions of potential homeowners."

Broadhead adds an outright ban on self-cert is not appropriate.

"We have always regarded self certification mortgages as a niche product for a very small group of borrowers, and do not believe that such mortgages should have reached a market share of anywhere near 45%.However, such products are suitable for a minority of people," he adds.

Peter Williams, executive director at Intermediary Mortgage Lenders Association (IMLA), says the FSA is heaping blame on non-banks and non-income verified lending.

He explains: "This is too simple an argument. Non-banks were not the dominant lenders in the markets in which they operated and non-income verification lending was underpinned by credit scoring systems. Non-banks play an important role in the UK mortgage market and a regulatory environment which makes it difficult for them to compete will only be detrimental for consumers and for innovation in the marketplace."