The regulator’s plans for the sector may still be in the consultation phase but this has not stopped some firms from implementing the proposals ahead of schedule.

A number of lenders and brokers are not waiting around for the March 2016 deadline and are changing their business practices now to match the Financial Conduct Authority’s wishes.

But what about those firms that can’t or won’t change their practices – will the proposals lead to a two-tier second charge market?

Tightening their belts

Lenders may still be digesting what the new proposals will mean for their business in detail but this has not stopped some from acting now and pre-empting which proposals will become final in 2016.

Murray Ewing, owner and director of Blimey Loans, says: “Some lenders have made changes to how they assess affordability and have introduced new income and expenditure forms.

“One of the main changes has been when the term of the loan takes the client past the age of 70. They can now only use a pension, investment fund or trust fund for affordability purposes and if they are not drawing their pension yet they will require their latest pension statement/illustration to show the amount they have in their pension pot. The income is then calculated using a percentage of the estimated pension pot,” he says.

Steve Walker, managing director of Promise Solutions, says: “Lenders are just generally making tweaks here and there and moving in the right direction. Some are doing it faster than others. There are those who are already there with full stress testing and full affordability, while others are doing a bit of a halfway house and others haven’t changed anything at all.”

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says because the sector is still a long way from knowing what the reality of the rules will be, lenders are not in an easy position.

“Some of the lenders are tightening up their criteria already and getting closer to the world they are going to have to operate in come March 2016,” he says.

“Lenders are focussing much more on evidence of income, demonstrating that they are lending responsibly and looking more at affordability through income and expenditure – they are not however at the stage where they are stress testing.”

Level Playing Field

Lenders are not the only ones who have taken matters into their own hands. Brokers are also starting to look at what measures can be introduced ahead of time. Sinclair however says brokers are not necessarily being as active as lenders.

“Brokers are talking and thinking a lot about what needs to be done. If they act now though and start getting staff trained so they can give advice, it should give them a reasonable amount of time to get all staff through that process.”

Ewing says it has already started to makes changes: “We have introduced our own income and expenditure form and we use this to check affordability on all cases regardless of which lender most suits the client.”

Inevitably though, not all brokers will be as quick off the mark and some may leave making any changes to the last minute.

Matt Cottle, director at Y3S, says: “If you are a small broker with two or three people it is going to be difficult to implement the compliance rules and pay for a compliance officer to do that job. We are a team of 50/60 people and we can listen to every phone call and every script – smaller brokers can not necessarily do this.”

He says: “My concern, and I know it is happening, is that a lot of smaller brokers are just putting their head in the sand and turning a blind eye. I think there will be some brokers out there who will just carry on trading until 2016 and then shut down.”

He says for these firms that cannot implement the rules, consolidation may be on the cards.

“Bigger brokers like ourselves will turn to consolidation and buy up some smaller brokerages and amalgamate them into our group of companies.”

Walker also says it carries out its own income and expenditure checks – irrespective of what lenders do but he believes some firms have underestimated what needs to be done.

He says: “In this kind of scenario you always get firms that are early adopters of the rules who may end up paying the price commercially for getting there sooner and those that will leave it until the last minute but have all the right intentions.

“Then there will be those who underestimate what they need to do and who don’t really understand what is required.”

The rules may still be in the consultation period but some things in the paper are unlikely to be edited out of the final rules, such as the proposals around affordability and income verification checks.

“The more conscientious brokers and lenders will be putting measures in place now to make sure they are ready for 2016, some will not though.

“The FCA will no doubt be aware that some firms will act faster than others and will be looking for evidence of this when it grants firms authorisation.

“Firms are already being pushed to meet the FCA’s requirements by 2016 but if they are to flourish going into the formal transition. As with most things, the old maxim ‘preparation is key’ clearly applies.