The global financial crisis and the resultant credit crunch has focussed attention both upon the regulation of the mortgage market, the irresponsible nature of some lending having played its part in precipitating the crisis, and the protections available to the growing numbers of borrowers in financial difficulties. This attention has led to a number of developments at national and European levels, the latter measures will be considered in the additional material for Chapter 31.

The FSA and The Turner Review
In October 2008, the government called upon the Lord Turner, who is Chair of the FSA, to compile a report upon the causes of the credit crisis and to identify the future regulatory direction of the FSA. This report, known as the Turner Report was published in March 2009. It is available from the FSA website: http://www.fsa.gov.uk/pubs/other/turner_review.pdf.

The Report notes the failings of the FSA’s regulatory model, including its failure to control irresponsible lending and to avert the near failure of a number of leading banks and building societies. It has announced the adoption of a more rigorous regulatory model. This new model moves away from decentred market regulation to provide for more intensive supervision which seeks both to assess the risk of the particular business models a lender adopts and the competence of a lender’s staff to successfully implement the model. The object is thus to try and regulate the systemic risk of the mortgage market.

The Report also announced a more detailed review by the FSA of mortgage regulation which is due to report in September. Particular issues expected to be considered include product regulation with possible limits on the type of mortgages regulated lenders can offer (eg by specifying minimum loan to security value and loan to borrower’s income ratios), irresponsible lending and regulation of all mortgages secured on the home by a common regulator.

OFT Initiatives
The OFT is continuing to review its regulatory responsibilities with recent consultations on second charge lending (see OFT 1057con February 2009), irresponsible lending (see OFT 1012resp December 2008 for a summary of responses) and its financial services strategy (see OFT 1077con April 2007).

The European Commission
The European Commission published in December 2007 a White Paper setting out its strategy for the integration of the retail mortgage market within the European Union see COM(2007) 807 available on the European Commission website: http://www.europa.eu.

Their proposals advocate measures to improve cross-border supply of mortgage credit, increase product diversity, to improve consumer confidence (both by empowering consumers to make responsible borrowing choices best suited to their needs and requiring lenders to lend responsibly) and to encourage borrower’s mobility to change their mortgage provider. Following on from this White Paper, the Commission is in the process of formulating new proposals for regulating mortgages these are likely to include: in relation to their stated policy aim of improving consumer confidence, requirements for pre-mortgage offer information, standardised interest rate comparators, and responsible lending with the provision of appropriate advice to consumers. Their proposals are expected in 2010.