IDEAS home Printed from https://ideas.repec.org/p/fsa/occpap/35.html
   My bibliography  Save this paper

Has MCOB regulation affected the suitability of mortgage sales to borrowers with impaired credit histories?

Author

Listed:
  • Kai Kohlberger

    (Financial Services Authority)

  • Richard Johnson

    () (Financial Services Authority)

Abstract

This paper describes economic research conducted for the second stage of the Mortgage Effectiveness Review. Mortgage Conduct of Business (MCOB) regulation came into effect in the UK on 31 October 2004. This paper tests one of the intended long-term benefits of MCOB regulation to consumers – ‘Do consumers take out suitable and good value mortgages?’ – focusing on the mortgage market for borrowers with impaired credit histories. The rate of mortgage arrears and repossessions has typically been higher among these borrows than in the prime market. Also, such mortgages are almost exclusively available through advisers that customers rely on to identify the best option for them.1 We use arrears, or shortfalls on two consecutive monthly mortgage bills by borrowers, as a measure of how suitable the mortgage contracts were when they were originated. We did not detect a systematic effect of MCOB on arrears rates in the sample. There was no visible step change in arrears rates around the time of MCOB and we estimate in our preferred regression model an effect of MCOB that is very small and close to zero. The sign on the MCOB variable is also not stable to changes in the controls used. We interpret this finding as a lack of consistent evidence for an effect of MCOB on the rate of arrears. Since arrears rates were used as a measure for suitability, this means that we could not identify an appreciable impact of MCOB on suitability.

Suggested Citation

  • Kai Kohlberger & Richard Johnson, 2009. "Has MCOB regulation affected the suitability of mortgage sales to borrowers with impaired credit histories?," Occasional Papers 35, Financial Services Authority.
  • Handle: RePEc:fsa:occpap:35
    as

    Download full text from publisher

    File URL: http://www.fsa.gov.uk/pubs/occpapers/op35.pdf
    Download Restriction: no

    More about this item

    Keywords

    mortgages; financial regulation; suitability;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fsa:occpap:35. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria-Jose Barbero). General contact details of provider: http://edirc.repec.org/data/fsagvuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.