CML responds to government proposals to extend mortgage regulation

Wednesday, 25, Nov 2009 12:00

The Council of Mortgage Lenders has a mixed response to the Treasury's proposals today to extend the scope of FSA mortgage regulation to cover second-charge mortgages, buy-to-let mortgages, and the sale of mortgage books to third parties.

The CML supports an extension of FSA regulatory scope to second-charge lending - indeed, the CML argued before FSA mortgage regulation was introduced in 2004 that it should cover all secured lending, not just first-charge mortgages.

The CML also understands and broadly supports the rationale for extending FSA regulatory scope to the acquirers of mortgage portfolios when they are sold on by the originator. Although there are bound to be technical issues to be ironed out in this area, and it is vital that such regulation avoids creating other knock-on negative effects, the principle is correct in and plugs an existing regulatory gap.

On buy-to-let, the CML is more agnostic. It is unclear whether the Treasury's main rationale for the proposed extension to scope relates to market risk or consumer protection.

If the aim is to protect amateur property investors from poor property investment decisions, then regulating the mortgage process - as opposed to the sale process - will not necessarily address this. And there is little evidence of consumer detriment to buy-to-let mortgage borrowers arising out of their mortgage borrowing, so the case for extending regulatory scope here is not clear cut.

CML director general Michael Coogan commented:

"We will now study the Treasury consultation paper in detail, in parallel with the FSA's consultation on potential changes arising from the Mortgage Market Review. 2010 is clearly going to be a year of regulatory change for mortgage lenders - but it's important that change should have a clear rationale and a clear set of outcomes, and not be implemented simply for its own sake as a reaction to past events that conduct of business regulation would not have prevented."

NOTES

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. There are 11 million mortgages in the UK, with loans worth over £1.2 trillion.

2. The Treasury's full press release and consultation document is available from the HM Treasury website.

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