Mortgage regulation: delivering a better deal for mortgage borrowers

The new regime is designed to enhance consumer protection in two key ways: mortgage lenders will need to be authorised by the FSA and to meet its high level standards; and the information about mortgage products made available to borrowers will be improved.

Michael Foot, Managing Director, FSA said:

"Buying a home is a huge financial commitment. But all too often, a lack of good clear information makes it difficult for consumers to understand and compare mortgages and to choose the best product for them. Our proposals are designed to get appropriate information to consumers in a timely fashion, and we would welcome feedback on their practical effect.

Going forward, the continued existence of the Mortgage Code will also be important in setting standards for the provision of mortgage advice, and we consequently welcome the efforts of the Council for Mortgage Lenders and the Mortgage Code Compliance Board (MCCB).

Details Consumer information The FSA proposes to introduce an integrated 'information package' to address the information needs of consumers both in the mortgage buying process and during the life of the mortgage. The proposed measures include:

• Rules on financial promotion material such as advertisements and marketing brochures, designed to create high standards in product transparency;

• Introduction of pre and post sale disclosure documents, to enable consumers to acquire clear information specific to their circumstances and in a standard comparable format;

• Provision of comparative information and consumer education to help in the early stages of shopping around, and to raise understanding of mortgage products;

• Measures to improve information provided to those facing arrears and repossession

Furthermore, these proposals would affect both mortgage lenders and mortgage intermediaries. In particular, under the provisions of the Financial Services and Markets Act (FSMA), all financial promotion material needs to be approved by an FSA-authorised firm; and the FSA is also consulting on whether it should require lenders to ensure that intermediaries provide disclosure statements to borrowers.

Standards for authorised firms All mortgage lenders will in future require authorisation. This means that they will have to meet the Threshold Conditions set out in the Financial Services and Markets Act (FSMA), and also the FSAs high level standards on, for example, senior management responsibilities and systems and controls.

Timetable and further consultation In the light of responses to this Consultation Paper and cost-benefit analysis, the FSA will publish detailed proposals (including rules and guidance) for consultation next Spring. The implementation of mortgage regulation is planned for six months after the Financial Services and Markets Act (FSMA) comes into effect.

The FSA is establishing an External Advisory Group, to advise on the detailed development of the regime. The Group will comprise practitioners (from various parts of the mortgage market) as well as consumer representatives. The membership of the Group will be published once finalised.

Notes for editors

1. The Government announced on 26 January 2000 its intention to introduce statutory regulation of mortgage lending, but not mortgage advice. HMT are currently consulting on the secondary legislation needed to implement this decision. Their proposals (most notably on the definition of a regulated mortgage contract) were published in a consultation document entitled Regulating Mortgages on 26 October 2000.

2. As the result of the earlier Government decision, the FSA will for the first time be responsible for regulation of loans to consumers where these are secured on their home. Under the current regulatory regime such loans are covered by certain provisions in the Consumer Credit Act quite separately, the sale of investment products bought as repayment vehicles for mortgages is regulated by the Personal Investment Authority.

3. Key dates in the timetable:

   12 January 2001 Deadline for response to FSA high-level consultation;

   March 2001 Publication of feed-back of first consultation exercise, and draft rules and guidance for consultation;

   July 2001 Making and publication of final rules. Applications for authorisation /change of permission can be made;

   January 2002 Full implementation of mortgage regime (or six months after the implementation of the FSMA, whichever is the later).

4. During the design of the high level proposals the FSA consulted with the Practitioners Forum, the Small Business Practitioners Panel and the Consumer Panel. Given the wider regulatory context it has also established a forum for those with some responsibility for mortgage market issues (including government departments, the OFT, CML and MCCB).

5. The Mortgage Code, developed by the Council of Mortgage Lenders (CML), is a voluntary Code setting out standards of mortgage lending practice. The Code is expected to be revised once the details of the FSA regime are finalised, and thereafter to have a particular role with respect to mortgage advice (including general business standards for intermediaries). The Mortgage Code Compliance Board (MCCB) was established by the industry to perform a dual function it maintains a register of mortgage lenders and intermediaries who fulfil the registration requirements (including a stated commitment to comply with the Code); and it also monitors the compliance of both lenders and intermediaries with the Mortgage Code. The MCCB has an independent Board with a majority of public interest members.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

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Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Policy/CP/2000/70.shtml.