MortgagesSep 11 2014

FCA raises spectre of TCF over stranded borrowers

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Mortgage lenders over-interpreting new affordability rules and failing to apply flexibility allowed under ‘transitional’ rules has been condemned by the regulator, which raised the spectre of Treating Customers Fairly breaches where borrowers are stranded on more expensive deals.

Lynda Blackwell, mortgages and mutuals sector manager at the Financial Conduct Authority, said the Financial Conduct Authority is disappointed “that some lenders are not approaching our rules in the spirit that they were intended”.

She was responding to questions from FTAdviser readers relating to cases where existing borrowers have for example been refused an application for their mortgage despite borrowing not increasing, leaving them on a higher rate deal or facing hefty exit charges.

A number of questions were submitted during the live Mortgage Market Review panel debate today (11 September), on the practice which was first highlighted once the new rules came into effect in April.

Ms Blackwell said: “There are two separate issues here – one is that lenders are applying the affordability rules when there is no requirement for them to do so, for example when the borrower is simply porting their mortgage and not borrowing more.

“The other is that where there are affordability issues, lenders are not using the transitional provisions to help customers when they could.”

Ms Blackwell said that ultimately it was up to each lender to set their criteria, but that every firm has a “responsibility to treat customers fairly”.

She added: “Leaving customers stuck on higher rate deals when the option exists to move them to one that costs less is not putting the customer first.

“Lenders need to take care not to be too process-led. This is something we will keep under review and we will intervene in cases where consumers are not being treated fairly.

“Borrowers can also complain if they feel that the firm hasn’t treated them fairly and they can take the case to the Financial Ombudsman Service, if necessary.”

David Hollingworth, head of communications at London and Country Mortgages, said it would be better to see transitional arrangements used to “provide wider benefit rather than be solely used as a retention tool.”

He said: “FCA policy intent was clear that these provisions were for new as well as existing borrowers. The market is currently failing borrowers by effectively removing their ability to vote with their feet, if they are not happy with what their existing lender is offering them.”

Elsewhere in the debate, the subject of those with interest-only mortgages being unable to move to fixed rates due to failing affordability tests was raised, alongside that of people being offered radically different - and higher - rates for interest-only mortgages.

Ms Blackwell said that the transitional provisions had been designed with the aim of helping borrowers who would not be able to meet the new affordability requirements, which included “interest-only borrowers who do not have an acceptable repayment strategy according to the new interest-only requirements.”

She added: “We put in place the mechanism that allows lenders to help customers who would otherwise be trapped in their existing mortgage, and this applies to customers who have a mortgage with a different lender.

“It is up to the firms to set their own risk appetite and decide whether they take advantage of this flexibility or not – ultimately whether lenders decide to take advantage of these provisions is a matter for them and we cannot compel them to lend.”