Perceptions of Regulation on the UK Mortgage Market: A Step Too Far?

  •  Ehsan Khansalar    
  •  Natasha Turner    
  •  George Giannopoulos    


Poor risk management within firms was the result of deregulation and the Big Bang of 1986. Without a regulatorand in order to achieve financial growth, firms inadequately managed their risk. The 2007 financial crisis was awake up call to the UK highlighting that companies could not carry on in this manner. The financial crisisresulted in the FSA assuming the role of an active regulator, thus many requirements were implementedincluding the Capital Adequacy Ratio. Consequently, gross mortgage lending decreased by 63% during2007-2010. Therefore, this study investigates the perceptions of the current level of regulation on the UKmortgage market. The research found there is a strong perception that the level of regulation is hindering lendingand competition within the market.

More specifically this study uses a qualitative approach of in-depth interviews with five financial and regulatoryprofessionals. The results suggest that two professionals perceived regulation as positive for the UK mortgagemarket. Regulation is perceived positively because of its ability to give consumers greater market confidence, theimplementation of loss mitigation strategies that prevent house repossession and the loss of irresponsible lenders.Three professionals perceived regulation as highly negative because it has reduced the lending rate, createdbarriers to entry thus reducing competition, has moved careless lending to other areas of the market such aspayday loans, has created a substantial cost burden, has used a one-size-fits-all approach and has not removedfraudulent activity completely.

Overall these results suggest that UK economy may struggle to get out of this recessionary period as long asthere are uniform capital requirements imposed on UK lenders. It is recommended that the regulator may take anapproach that lessens the requirements enforced on non-bank lenders. However, the capital requirements shouldbe imposed on banks that have wider implications for the UK economy and caused the current financial crisis inorder to prevent future financial crises. Another recommendation is the segmentation of building societies frombanks as seen in the 1970s. The separation would create market confidence and would result in greater localknowledge; this would stimulate growth within the UK mortgage market.


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