The Financial Conduct Authority has written to the chief executives of mortgage lenders stating that it is set to step in over ‘unfair’ hikes to mortgage rates and that it is planning to publish a discussion paper on the issue next year.
In a ‘Dear CEO’ letter signed by director of supervision Clive Adamson, the regulator stated that it is “concerned” factors driving changes to standard variable rates may not always be “transparent” to consumers and that it may breach regulatory principles.
The letter states that desired changes may also be unfair under the ‘unfair terms in consumer contracts regulation 1999’; and “incompatible with FCA ‘principles for businesses’ and other rules”.
The intervention follows on from criticism of a major rate hike by Bank of Ireland in February, when it wrote to 13,500 mortgage customers informing that its base rate tracking mortgage would increase from Bank of England base rate plus 1.75 per cent to plus 4.49 per cent on 1 May.
In May the bank performed a minor climbdown on the rise, stating that it was no longer demanding higher interest rate payments on 1,200 customers’ mortgages, but that 12,300 customers will still have to pay the increased rate.
In another case in September, FTAdviser revealed that West Bromwich Building Society has hiked 6,700 buy-to-let tracker rates by 2 per cent from 1.49 per cent to 3.49 per cent from 1 December, with an adviser stating the society was not treating customers fairly.
Mark Alexander, founder of campaign group Property118, told FTAdviser sister title Financial Adviser last week that advisers were coming forward to join a collective action against the building society, with more than half of the £100,000 needed to bring legal action already raised.
The FCA’s letter states the expectations of firms when it comes to standard variable rates under existing rules, in particular in relation to communicating the change and the reasons for it to customers.
Mr Adamson writes: “Unless lenders have reason to believe that they should notify us of a change to their SVR... we do not routinely require pre-notification of changes to SVRs, nor justification for the change. Lenders should, however, be able to demonstrate how they have complied with the relevant regulations and rules.
“When making changes to mortgage contracts, firms should observe the unfair terms in Consumer Contracts Regulations 1999 and comply with our Principles for Businesses and our Mortgages and Home Finance: Conduct of Business sourcebook.
“We intend to publish a discussion paper about fairness in the context of changes to mortgage contracts in 2014. The paper will consider the factors that are likely to be relevant when assessing the fairness of firms’ conduct when they make changes to their mortgage contracts.”
