FCA: affordability solution is not "easy, certain or singular"

He added that MMR had been a success, but raised concerns about about the equity release market and affordable housing.

Kicking off the conference, Woolard said that MMR had caused a shift in the risk appetite of industry, but had not dried up the market as predicted.

He said:

"Looking back now, it’s difficult to square those forecasts with actual market activity. Particularly when you assess the number of mortgage approvals post-MMR versus pre (43pc against 41pc).

"But there is clearly a question here as to what the ideal level of activity is and how you achieve it.

"No-one, frankly, wants to return to the unaffordable lending practices of the past, where almost every application was approved. And this is likely to mean (among other things) that assessments of mortgage applicants’ circumstances will continue to require more care than they did pre-crisis.

"We do, however, have to remain sensitive to the impact of these reforms over the long run. And we certainly need to keep focussed on outcomes and whether the market is working well. Even if we believe our rules are proportionate, we need to remain alert to how firms are interpreting them and the effect on consumers.

"That is why we will be undertaking a mortgage market study soon, which will include a review on key aspects of the implementation of the MMR."

Discussing affordable housing, Woolard said that the answer "will not be easy, certain or singular", and will come from a combination of factors, including: ongoing assessment of regulatory impact; market growth and innovation; and central government-led policy.

He added that the industry needs an approach that can be applied to multiple issues across the mortgage market, including core challenges like the UK’s ageing population - one of the UK's "most pressing societal issues".

Globally, he said the forecast is for a 244% increase in the number of over 85s in the next 35 years, but that equity release has become a "dirty word".

He added:

"Whilst we have seen a combination of regulation and industry-led initiatives to help clean up the market, some will argue that the costs of equity release, both up front and compounded over time, are relatively high for the individual, and that the previous image has stuck.

"It’s clear that the UK and EU equity release markets are relative minnows. Indeed, by EU calculations, only 13 member states have a market. Accounting for just 0.1pc of total EU mortgage lending. Significantly smaller in scale than the US.

"Now, this does invite the question as to whether the reputation of the market has reduced the number of firms and consumers willing to engage in it."

Woolard said that a debate was necessary about what products and markets could exist and whether more entrants and innovation might benefit consumers with greater choice and improved products. He said that the FCA will converse with industry and consumer bodies over the autumn about what options could exist in the future.

On the future of the mortgage market, he said that as 80% of the mortgage market sits in the hands of six main players, competition can play a key role in ensuring the mortgage market works well.

He concluded:

"If competition is functioning effectively, it should lead to lower prices, better consumer service and more innovation in the form of products that better address consumer needs. Inversely, if competition does not work well, we know you quickly run into a host of potential issues.

"So, for instance, consumers not buying mortgage products or services that are appropriate for their individual needs or circumstances. We might find customers paying too much for the products or services they receive or opaque pricing split between headline rates and fees. Or faced with a lack of real choice even though a number of firms may offer similar products.

"Market features need to facilitate competition. Regulation is not the be all and end all, but can have an important impact on how well competition works – in fact, many aspects of the regulatory regime are designed to affect the ability of firms to enter or be present in a market and the type of products they offer.

"But, we need to ensure that, in doing so, they do not put an unnecessary constraint on competition. Although much of the market is based around the idea of the 25 year mortgage with some kind of fixed or capped element, we have to ask ourselves whether that will always be the case.

"The relevance of all these issues is at the origin of the commitment in our Business Plan to undertake a market study starting early in 2016 on those aspects of the mortgage sector that may not be working well."