Through their mortgage report, the consultants at Policis have once again shown that the research they produce is aimed at assisting the finance industry in defending its own interests. It brings us back to the beginning of this decade when a similar industry-friendly study they did was presented as solid empirical research. In its campaign against usury ceilings in the UK which had been taken up in Brussels, by the French bankers' association, the Japanese and Australian governments, the UK government constantly cited a seemingly empirical report about the situation of poor people with regard to usury ceilings in France and Germany. In the meantime the UK OFT seems to share this critique and has integrated these remarks into its 2010 report on high cost credit. For ECRC it is no surprise that the crown witness of the unfounded reports about credit crunches for poor people in Germany and France because of credit regulations now shows itself as an open lobbyist of the banking industry, now attacking the careful steps which the new UK government is taking into this direction.
While matters seem to be changing and the UK government seems to be more inclined to select independent research for consumer related issues than its predecessors, in Brussels however, DG Sanco is still inclined to follow the old line in favour of hiring research teams which have limited standing in this area of research (but enormous needs to get a follow up contract).
Here is the short description of our ECRC partner CfRC in the UK on its latest efforts:
Policy, Legislation and Regulation
Council of Mortgage Lenders calls for FSA responsible lending proposals to be withdrawn
The Council of Mortgage Lenders has released two new reports which attack the FSA's proposals to create a more responsible lending market by improving the quality of affordability assessments. The reports, produced by Policis and Oxera Consulting, argue that the FSA's concerns that lenders have failed to make appropriate affordability assessments, and that these have caused borrowers to be vulnerable to financial shocks, is not borne out by evidence. On the basis of the reports' findings the Council of Mortgage Lenders has called for the FSA's proposals to be withdrawn and a new set of proposals drawn up for consultation.
The Policis report claims that 'policy concerns on affordability do not recognise the reality of the flex in consumer budgets and their ability to prioritise mortgage payments', and supports this by stating that 87% of those who have experienced reduced incomes through the recession have adapted their budgets without significant strain on their finances. On the other hand, the report also finds that 18% of borrowers do feel under significant pressure because of job loss and reduced income and that 20% of this group have at some point been behind on their mortgage payments.
Policis proceed to conduct an impact assessment of the current FSA proposals and estimate that "19% of current borrowers, or 2.2 million individuals would not be able to borrow at all and a further 30% (3.4 million) would see reduced borrowing."
The Oxera Report claims that the FSA proposals will be more costly than anticipated and are impracticable. It argues that the compliance costs of income verification are likely to be higher than estimated by the FSA. Previous estimates were between £2.3 - £7.3m but Oxera now claim it could cost between £7.1 - £10.3m. The difference is accounted for by the draft proposals for lenders to investigate applications beyond merely checking a payslip or bank statement.
On the affordability criteria, Oxera claims the changes are unworkable and will exclude a significant number of mortgage applicants. The report claims that neither a statistical approach nor an individual level approach is practicable for lenders to implement. Oxera also finds the FSA's proposals that lenders ought to take into account reasonably foreseeable events unclear.
The reports are available from the Council of Mortgage Lenders website. CfRC will be publishing a response to the FSA consultation later this week.
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New research prompts CML to urge FSA to announce responsible lending reconsultation
04 Nov 10
At the launch today of two major pieces of independent research on the potential impact of the FSA’s responsible lending proposals, CML director general Michael Coogan called on the FSA to make an early announcement before the consultation deadline of 16 November that it will reconsult on a new draft of responsible lending rules, with a full and complete impact analysis.
Such an announcement would enable respondents to the consultation to respond far more constructively and to forge a path with the regulator to achieving the right regulatory outcomes, in the knowledge that the FSA is listening to the evidence, and aware that the rules as currently drafted are well-intentioned, but flawed and impractical.
The two new sets of research findings, by economic research consultancy Oxera and by economic and social research consultancy Policis, have been funded by the CML but are independent in their assessments. They, along with the other evidence produced by the CML itself, should give the FSA pause for thought as they bring together a wide range of evidence that suggests there would be a range of negative, unintended outcomes from the implementation of the FSA’s policy and proposed rules as currently drafted.
Michael Coogan reflected:
“The FSA, like the industry, needs to have a clear steer from the coalition government about what type of regulatory structure is needed to support housing policy and deliver systemic stability in the mortgage market in the 21st Century… Before we go much further on the MMR, or the restructuring of regulatory bodies, we need Ministers to be clear about their intentions. Whether they want regulation to protect the vulnerable minority, or give an opportunity to the majority to achieve their aspirations. They can do both by allowing free access to the market to responsible borrowers, but establishing an effective safety net for the few who have difficulties due to changes in their lives. This is not the approach which the FSA has taken due to its limited focus on its conduct risk strategy.
“When we know what the government wants the regulator to achieve, we and FSA officials will be in a better position to deliver the sustainable market for all participants which is flexible for consumers. These two outcomes reflect a shared vision by the FSA and lending industry. The CP proposals have blurred that vision to a point where neither outcome will be delivered by CP 10/16 as drafted. If you agree, write to the FSA, your local MP and relevant Ministers.”
Notes to editors
1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.4 million mortgages in the UK, with loans worth over £1.2 trillion.
2. The two pieces of independent research are Compliance analysis of the FSA’s proposed income verification and affordability assessment rules in the mortgage market review (MMR) by Oxera and Consumer and market impacts of the FSA’s mortgage market review (MMR) by Policis. Today at the CML’s responsible lending research launch, CML director general Michael Coogan made the following speech. There has also been relevant coverage in two recent CML News & Views articles: Deep impact: how many good borrowers is regulation prepared to exclude? and New analysis shows effect of FSA proposals on current lending. |
