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

Khansalar, Ehsan, Turner, Natasha and Giannopoulos, George (2015) Perceptions of Regulation on the UK Mortgage Market: A Step Too Far? International Journal of Business and Management, 10(8), pp. 59-72. ISSN (print) 1833-3850


Poor risk management within firms was the result of deregulation and the Big Bang of 1986. Without a regulator and in order to achieve financial growth, firms inadequately managed their risk. The 2007 financial crisis was a wake up call to the UK highlighting that companies could not carry on in this manner. The financial crisis resulted in the FSA assuming the role of an active regulator, thus many requirements were implemented including the Capital Adequacy Ratio. Consequently, gross mortgage lending decreased by 63% during 2007-2010. Therefore, this study investigates the perceptions of the current level of regulation on the UK mortgage market. The research found there is a strong perception that the level of regulation is hindering lending and competition within the market. More specifically this study uses a qualitative approach of in-depth interviews with five financial and regulatory professionals. The results suggest that two professionals perceived regulation as positive for the UK mortgage market. Regulation is perceived positively because of its ability to give consumers greater market confidence, the implementation 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, created barriers to entry thus reducing competition, has moved careless lending to other areas of the market such as payday loans, has created a substantial cost burden, has used a one-size-fits-all approach and has not removed fraudulent activity completely. Overall these results suggest that UK economy may struggle to get out of this recessionary period as long as there are uniform capital requirements imposed on UK lenders. It is recommended that the regulator may take an approach that lessens the requirements enforced on non-bank lenders. However, the capital requirements should be imposed on banks that have wider implications for the UK economy and caused the current financial crisis in order to prevent future financial crises. Another recommendation is the segmentation of building societies from banks as seen in the 1970s. The separation would create market confidence and would result in greater local knowledge; this would stimulate growth within the UK mortgage market.

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