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FCA sets out plans to scrutinise housing market


Published: 1 April 2014 | Author: Bernard Clarke

The mortgage market review (MMR) will help limit lending that may be unaffordable for the consumer, the Financial Conduct Authority (FCA) has predicted in its newly published business plan. However, once the new rules have bedded in, the FCA intends to use the rest of this year and next to look at how firms are implementing affordability rules and giving advice to customers.

In the business plan, the FCA highlighted “substantial and rapid” house price growth as a potential risk to its objectives. It sees a risk of house prices rising faster than either incomes or rents, as demand increases in the absence of sustainable supply.

As the economy improves and interest rates rise, the FCA believes that some consumers could be exposed if they take on too much debt in order to extract equity or buy homes. 

In the plan, the FCA says that it does not know how effective its rules will be when the market is growing. “In a rapidly growing market, over-confidence in future price growth could lead firms to gradually loosen underwriting standards to maintain a share of the growing market,” it says.

Other areas the regulator intends to scrutinise include the development of hybrid equity release products as a solution to interest-only maturity, as well as governance over mortgage lending strategies. It also plans to look at a sample of smaller firms to see if customers are being treated fairly in line with the guidance it published on interest-only mortgages in August last year.

Under the heading of mortgage and consumer lending, the FCA also says it will look at:

  • forbearance practices and the treatment of customers in arrears in the high-cost short-term lending market; and
  • the suitability of advice in debt management firms, including how incentive structures and the use of lead generators may affect consumers.