Lenders’ reasons for making a change to regulated mortgage contracts, as well as the benefits they derive from changes, are being probed by the Financial Conduct Authority.
In a discussion paper published today (7 July), the FCA confirmed it is looking at whether borrowers’ reasonable expectations are being met or whether lenders are unfairly changing mortgage conditions to bolster their own profits.
The latest FCA probe comes after a Conservative MP kicked off this year by calling on the FCA to investigate an “immoral” practice whereby lenders have been increasing lifetime tracker mortgage rates for existing customers.
David Morris, MP for Morecambe and Lunesdale, tabled a motion to put before the House of Commons, citing evidence relating to West Bromwich Building Society, which last year put up its lifetime buy-to-let tracker rates by 2 per cent and sent letters to investors saying it had the right to recall the loans “at any time”.
The City watchdog outlined a whole host of ways lenders have adapted their mortgage terms in a series of case studies and revealed whether it considers this tinkering to be fair or detrimental to the borrower.
The FCA warned it frowned on changes that effectively trap the borrower with the lender in question.
However the FCA stated whatever feedback it received from consumers following this latest probe it would not produce “an exhaustive list of all the factors that lenders would need to consider when making changes to their regulated mortgage contracts”.
The regulator stated it would continue to assess fairness on a case-by-case basis, but added further guidance could be issued expressing what the FCA considers are fair changes to mortgage contracts.
The FCA stated: “Lenders can change their regulated mortgage contracts after the point of sale without treating their customers unfairly.
“However, there can be fairness issues if, for example, the lender misled the consumer about the likely operation of a mortgage during its term.”
According to the FCA, factors likely to drive expectations include the name of the mortgage product, what advisers told customers, the content of marketing material and contractual documentation.
The deadline for feedback is 30 September.
