The Financial Conduct Authority (FCA) is the regulatory body that oversees the financial market; it replaced the Financial Services Authority, and more about this change is covered during the part of the CeMAP training that looks into the background of UK regulation.

As well as forming a new regulatory body, the FCA also conducted a full review of the mortgage market (MMR). The review was designed to reassess the market, look at the legislation currently adhered to by lenders, and ensure that lending decisions were still being made in a responsible manner.

The framework that was previously in place had not necessarily proved effective in all areas, particularly in the field of higher risk lending. The main goal was to prevent a return to the inappropriate lending of previous years, which saw many fall into financial difficulties when it came to repaying the debt, whilst still ensuring the majority of people had access to borrowing in a responsible manner.

Once the review had been completed, a number of changes were gradually implemented, officially coming into force at the end of April 2014 and, for intermediaries and brokers included:

• Those providing mortgages must hold the appropriate qualification, approved by the regulatory body, such as CeMAP
• Removing the option for a face-to-face non-advised option
• Ensuring that most sales completed interactively, in person or over the telephone were conducted on an advised basis
• Postal and internet sales to be offered on an ‘execution only’ basis (non-advised)
• Removing the necessity to provide a Non-Disclosure Document at the beginning of an interview (although lenders may retain this if they wish)
• The issuing of the Key Facts Illustration is only needed where requested by the customer or where a product is recommended

As an advisor employed by a mainstream lender, you are responsible for conducting a full and detailed analysis of your customers’ income and expenditure. This is to review their affordability and determine that they can maintain the loan repayments. Even if a customer chooses to approach an intermediary, it is ultimately still the lender who holds the responsibility to assess affordability.

Many lenders are now reluctant to lend on an interest-only basis, but they can, providing they assess and validate a suitable repayment vehicle.

The tighter regulation enforced following the MMR means there are some instances when existing borrowers no longer meet the criteria for lending. The MMR has put some transitional provision into place, meaning that so long as they are not looking at increasing their total borrowing, the lender has additional discretion on whether or not to override and approve the lending.

So, whilst the MMR means that a number of new stricter regulations have been introduced, as a mortgage adviser you will have an enhanced feeling of integrity. By following the new guidelines to correctly assess each customer’s affordability, you can be confident that they can comfortably maintain their repayments and that your duty of care has been fulfilled.

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