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Speaking at UK Finance's Annual Mortgage Conference in London, Richard Rowntree, UK Mortgages Director, Bank of Ireland UK said:

Introduction

Good morning and welcome to you all. It's great to see so many of you here from across our diverse industry.

We meet at a time of major regulatory change and ongoing political uncertainty for the sector. As you may know, today was originally pencilled in for this year's Budget.

However, this date was of course then postponed due to the recently agreed Brexit delay and the general election.

So fortunately, we won't be competing for your attention today with the chancellor's latest housing announcements.

But that doesn't make the issues facing our sector any less pressing.

Affordability and the changing shape of the mortgage market. Responsible lending and customers with inactive lenders on reversion rates. And the ongoing transition from Libor to Sonia.

These are all areas where the mortgage industry faces profound regulatory changes over the coming years.

And they are all issues on which UK Finance continues to provide guidance to our members, while engaging closely with regulators and policymakers to ensure the best possible outcomes for firms and their customers.

Overview of mortgage market trends

Despite the ongoing uncertainty, overall the mortgage market has continued to see steady growth in recent months.

UK Finance's latest figures show there has been steady growth in the number of first-time buyer mortgages in the year to date. 

This would suggest that support from parents and schemes such as Help to Buy are continuing to boost the number of borrowers getting onto the housing ladder.

Gross mortgage lending across the residential market is also holding up at over 22.3 billion pounds in September 2019, up almost four per cent compared to the same month last year. However, it's too early yet to tell whether this recent growth will be sustained in the medium to long-term.

Meanwhile, there are tentative signs that the impact of recent tax changes on demand for new lending in the buy-to-let market could be beginning to ease. July saw the first year-on-year increase in the number of buy-to-let loans since October 2017.

And the number of buy-to-let remortgages has also broadly remained steady, showing many landlords remain committed to the market. But the market has not yet recovered from the change in stamp duty in 2016, and further tax changes are due to come into force next year, so we?re far from being out of the woods yet.

On the residential remortgaging side, we?ve seen a slight cooling off in activity following a busy start to the year. Of course, remortgaging is cyclical and depends on the maturing of fixed-term deals, so it is impacted by borrower behaviour from two and five years ago.

We?ve also seen product transfers become more popular, with 292,500 homeowners switching product with their existing provider in the second quarter of 2019, up seven per cent year-on-year.

This suggests that many of those who would traditionally have taken out a pound-for-pound remortgage are instead now switching products internally.

These figures also show that customer engagement remains high and the majority of mortgage customers switch to a new deal shortly after their previous deal expires.

Customers on reversion rates and FCA announcement

But while customers of active lenders continue to take advantage of being offered a new deal by their existing lender or shop around for a remortgage, some borrowers with inactive firms remain on reversionary rates that are higher than the market average.

This is of course an issue that the FCA has been focusing on, announcing new rules last week aimed at helping these customers switch to a new deal, which I expect Christopher Woolard may touch upon later.

The regulated mortgage industry supports the FCA's objective of helping creditworthy borrowers on reversion rates switch to a better deal.

Indeed, the voluntary agreement implemented by the industry last year led to 26,000 customers of active lenders being offered a new deal.

We?re now looking forward to the FCA publishing up-to-date information on borrowers with inactive firms.

This will give us a better sense of how many customers may be able to be helped and inform the industry in developing products that meet these customers' needs. However, it's important to remember that it will be up to individual lenders whether they offer products under the new rules, depending on their current commercial and risk appetite.

Given the complex changes that lenders would need to make to their lending policies, underwriting, systems and staff training, we also need to be mindful that it could take some time before any new products are in place.

Under the new rules, the majority of customers of inactive firms will have to be contacted by their servicer by September next year. However, it is unlikely that customers with low balances or a short term left on their mortgage, in negative equity, or on an interest-only mortgage with no repayment strategy will benefit from the changes.

It will therefore be important to consider how to manage the risk that some may customers be given false expectations that they will be able to secure a new mortgage.

We will continue to work with the regulator's implementation group as the new rules are rolled out.

But however hard we work, there will be a large number of customers of inactive firms who will not be helped by the new rules.  And the FCA has recognised that many of these customers currently sit outside their regulatory protection. So we urge the incoming government, of whatever political persuasion, to ensure that all customers, regardless of owner, are treated fairly.

Libor to Sonia transition

This brings me to another key topic in our conversations with regulators and government, the transition from Libor to Sonia.

Libor underwrites around 300 trillion dollars? worth of contracts worldwide, from complex derivatives to homeowner mortgages.

At present, panel banks have agreed to continue to submit to Libor until the end of 2021, to enable time for the market to transition to an alternative interest rate benchmark.

But the UK regulatory authorities have set a deadline of the end of 2021 for the transition away from LIBOR and have strongly suggested that no new LIBOR linked contracts should be written from the third quarter of 2020.

The transition to Sonia over the next few years will be a huge systemic change. So it's vital that firms begin putting plans in place now.

UK Finance is dedicated to supporting the industry in meeting the end-2021 deadline.

But a number of pieces of the jigsaw need to be put in place for firms to make key decisions about the transition. We expect to see papers from the Risk Free Rate Working Group set up by the Bank of England and FCA in the next few months on how to deal with legacy cash products, on a credit spread adjustment and on the need for a term rate. 

Legacy contracts undoubtedly pose a challenge.  Firms may take a range of approaches in choosing how to move these customers to an alternative rate. UK Finance has published a toolkit for its members to help them think through the decisions they need to make. The key consideration for firms will be acting in their customers? best interests and ensuring that any changes made are fair to customers.

Further clarity from the regulator about their expectations would be helpful.  In some cases, we believe that there may need to be specific regulatory or legislative intervention to support consistent and fair customer outcomes.

We are also working closely with regulators, other trade associations and other industry stakeholders on strategies to communicate these changes to customers.

I look forward to following the more in-depth analysis of this issue at this afternoon's panel discussion.

Conclusion

The mortgage market has changed significantly over the last decade, shaped by regulatory, political and economic drivers. This has had an impact on our housing market too.

The research we are trailing today, carried out with Zoopla/Hometrack, will provide an evidence base of the current size and shape of the mortgage sector and its intrinsic links to the housing market. 

Given that Parliament was dissolved last night we won't publish the full report until after the election.   We want it to act as a springboard for considered, measured policy and regulatory debate about the market of the future we want to create. And we stand ready to be involved in that debate.

And I?ll now hand over to Christopher Woolard from the FCA, to give us the view from the regulator on the issues facing the mortgage market.