Mortgage brokers hit by £80m IT bill

As many as one in ten mortgage brokers could be forced out business as a result of Financial Services Authority (FSA) regulations that could impose IT costs of as much as £80m.

This would be in addition to the existing £136.3m in costs already identified by the FSA.

On 31 October the mortgage industry switched from operating under a voluntary code of practice to being an FSA-regulated industry, bringing more than 10,000 mortgage firms under the watch of the UK regulator.

The new regime requires mortgage intermediaries to show customers clear product illustrations and advertising, as well as submitting regular electronic reports to the FSA.

Chris Cummings, director of Association of Mortgage Intermediaries (AMI), says the added costs could see up to one in ten firms being squeezed out of the market.

'We believe the new regulatory regime will incur costs to mortgage providers of about £80m in new IT equipment, as they prepare for electronic reporting and other FSA requirements,' said Cummings.

He says the number of mortgage firms has already shrunk this year from approximately 13,000 to 11,000 as companies either exit the market altogether or merge with others to share the regulatory burden.

The impact has already been felt in the market, with Alliance & Leicester, Abbey and Direct Line all having temporarily taken mortgage products off the market as they bring their systems in line with the regulator's requirements.

Meanwhile, FSA chief executive John Tiner has warned against any firms planning to fly under the radar and continue providing mortgages without regulatory approval.

'An early priority for us will be to enforce the perimeter of the new regime and crack down on any firms that may consider continuing with unauthorised and illegal mortgage business,' he said.

The regulator has already received 7,676 applications from the mortgage sector, and by the 31 October cut-off date had authorised 7,119 firms.

According to the Council of Mortgage Lenders, there are 11.5 million mortgages in the UK, with loans worth around £800bn.