§ Mrs. Liddell
The Government have been considering how best we can carry forward our manifesto commitment for fair dealing in mortgages, the most significant transaction many ordinary people undertake.
As part of a series of decisions on the future scope of regulatory reform, I am announcing today that the proposed legislation to establish the Financial Services Authority (FSA) as a single regulator will include powers enabling it to regulate mortgage business. We will be monitoring the Council of Mortgage Lenders (CML) Mortgage Code which was introduced in July 1997, to see if that, on its own, is capable of protecting mortgage borrowers to the standard the Government are determined to see achieved.
The Treasury will be discussing the arrangements with the CML, but the main elements are likely to consist of:
- i. a baseline (verified by the Office of Fair Trading) against which to monitor the Code;
- ii. regular information and reports from CML;
- iii. independent information from other sources;
- iv. an on-going consultation process with CML itself about how the Code is working; and
- v. a formal review in 1999, then, if the Government decide not to legislate, an interim review in the year 2000, with reviews every two years after that—ie in 2002, 2004, and so on.
The Government will be monitoring the Code's impact on the whole mortgage package, ie the mortgage itself, the tying-in products such as insurances, as well as repayment vehicles like endowments, even though the latter are already regulated by the FSA.
Whether the reserve power is activated will depend upon a number of factors, including the extent to which the Code secures good quality advice for prospective borrowers; promotes good practice in lenders' dealings with borrowers in difficulty; and provides remedies for borrowers' legitimate grievances. The Treasury will ask the CML to report on the impact of the Code, and provide statistical background, before the legislation is brought into effect. The Treasury will also look to the Department of Trade and Industry and the Office of Fair Trading to monitor the guidelines for non-status market lenders and brokers, and agreements under the Consumer Credit Act 1974. In addition, the Treasury will look to the FSA for an assessment of the likely costs of activating the reserve power, to assess whether they would be commensurate with any potential benefits. Others with knowledge of the mortgage market would also be consulted before any decision is made.