Background

Mortgage Conduct of Business (MCOB) regulation was introduced on 31 October 2004. An important objective of the regime, by requiring standardised disclosure, is to help consumers shop around to understand the risks and features of mortgage products. It is an empirical question whether these rules have had their intended effect. While there are a range of market impacts that can be expected of any regulation requiring disclosure, the key effects that studies of other markets have explored are on prices and market efficiency (Goldstein, Hotchkiss and Sirri, 2006). An ex-post analysis can have some clear advantages over ex-ante projections, and could also inform future ex-ante analyses.

Objective

This research work, the preliminary results of which were published in the our Effectiveness Review, is looking to establish whether the regime is delivering its intended outcomes for consumers. Principally the research aims to answer the following question:

What changes in the prime mortgage market, in terms of price and efficiency of consumer choices, have occurred since regulation was introduced?

If MCOB has been successful in improving consumer understanding, we would expect average market prices to have fallen and/or consumer efficiency to have improved.

Method

Our method for price analysis centres on comparisons of the mortgage cost before and after the introduction of MCOB and testing for significant movements in prices. Our approach to measure consumption efficiency is to use a Data Envelopment Analysis (DEA) approach to measure consumption efficiency by analysing the performance of firms in offering, and consumers in choosing, mortgages.