Policy review reveals new priorities for CML
Published: 3 July 2015 | Author: Bernard Clarke
Back in January, we set out our view of the challenges and policy priorities for lenders for the rest of the year. As time passes, however, priorities evolve – and rarely more so than in the aftermath of an election which produces a change of government. So now, having reached the mid-point of the year, it seems like a good time to review progress on our policy priorities so far – and reflect on how they have changed since the beginning of the year.
One major project that we have launched since the start of the year and which is growing in importance is our work on retirement borrowing.
In March, director general Paul Smee set out his views on the challenges in this area, and how developments like pension reform and demographic changes associated with the UK’s ageing population had made retirement borrowing “an important agenda for our times.”
We believe that the lending industry should play a central role in shaping the debate on this topic. Last month, we provided an update on recent market developments. Now, we are pursuing four main strands of work: on consumer demand and the needs of older people, the types of products that could successfully meet demand, the impact of developments like pension reform, and how regulators and government will view this evolving market.
Our members are already making a significant contribution to our work, and we are planning to widen the debate to ensure that others with an interest in the topic will have the opportunity to participate. We aim to set out our views more fully on the future potential of retirement borrowing before the end of the year.
Another project that has assumed greater significance over the course of the year has been our work with the consumer organisation Which? to improve the information lenders give to consumers and make it is easier for them to understand mortgage fees and charges and compare the cost of borrowing. Later this summer, we will publish firm proposals on how we believe this information should be presented, and a timetable for implementation.
The aim of this work, which is supported by the Treasury, is to develop a common approach among firms in presenting information on fees and charges to avoid confusion for customers.
One outcome will be that fees that currently have an array of different names will be described more consistently. There will also be a better explanation of whether fees are compulsory or not, and when they will be charged. Another aim will be to enable consumers to compare the cost of mortgage deals over specific periods, and not just upfront.
The European mortgage credit directive
There are now less than three months to go before we reach another significant milestone for lenders – the date on which they can begin operating by rules drafted by the Financial Conduct Authority (FCA) for implementing the European mortgage credit directive. Although the rules do not come into full effect until 21 March 2016, lenders can adopt them six months early, from 21 September.
So far this year, we have made considerable progress in reducing the areas of contention and uncertainty for firms in complying with the directive. In doing so, we have worked closely and collaboratively with the FCA team overseeing implementation of the directive.
During the rest of the year, we will continue to host workshops on the directive (the first two have been well attended), and to work on guidance for lenders on its impact on foreign currency lending, the annualised percentage rate of charge, and contract variation.
Another issue on which we will be raising our profile in the second half of they year is on interest-only lending. We will be updated lenders on developments at an event in September.
In our view, it is important to sustain the momentum of lender activity in contacting interest-only borrowers. Lenders will need to continue to show engagement in helping ensure borrowers have adequate plans for repaying interest-only mortgages. We believe that this will be seen as an important measure of the industry's ability to prioritise the needs of customers.
There is continuing uncertainty about when the Bank of England will eventually raise its base rate, and when mortgage costs may begin to rise as a result. At this stage, our lender panels are undertaking technical work to ensure that the industry is well prepared, and we expect that this work will take on a greater significance toward the end of the year.
In the spring, we launched our statement of practice on buy-to-let lending, which was well received and has been widely adopted. The potential impact of the buy-to-let sector on financial stability is an issue that is now rising up the regulatory agenda.
The role of government – and regulators
Later this year, we may also see a broader discussion about the balance between home-ownership and rental markets. This may be in the context of the new government’s housing strategy – and the possibility of new initiatives for first time buyers – and so may be politically driven.
We expect more details of the new government’s housing strategy to emerge in the second half of this year – although many may involve lenders only indirectly.
Programmes intended to promote housing construction and expand the Right to Buy are being developed, and we will need to push for financing considerations to be kept to the forefront as proposals are developed. On some measures, such as Help to Buy ISA, the lending industry may have only a low level of direct involvement.
Another objective for the second half of the year will be to build our relationship with the Prudential Regulation Authority. We expect to be working with the regulator on a range of subjects, including our retirement borrowing project, Basel reforms, and the impact of capital requirements on the housing strategy.
Finally, before the end of the year, we expect to be asked for our views on the effect of the ending of the mortgage guarantee scheme and on what, if anything, should succeed it.
As in previous years, the mid-year review of policy priorities emphasises the breadth of challenges facing the lending industry. In the second half of 2015, we expect to be working on a broad and evolving range of policy issues.
A good deal of our workload has already been planned or anticipated but this autumn, in particular, we also expect to have to respond to the government as it launches and develops a range of policy initiatives. This will shape our organisational priorities in the second half of this year and beyond, as our workload continues to evolve.